Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

PRIVATE BUSINESS

BRITISH RAILWAYS BILL

As amended, considered; to be read the Third time.

BRITISH RAILWAYS (TROWSE BRIDGE) BILL [Lords] (By Order)

YORKSHIRE WATER AUTHORITY BILL (By Order)

Order for Second Reading read.

To be read a Second time upon Thursday 11 July.

Oral Answers to Questions — EMPLOYMENT

Youth Training Scheme

Mr. Park: asked the Secretary of State for Employment how he proposes to finance the second year of the youth training scheme.

The Secretary of State for Employment (Mr. Tom King): We are making some £925 million in 1986–87 and some £1,100 million in 1987–88 available for the new youth training scheme. Employers will also be contributing to its costs.

Mr. Park: What steps does the Secretary of State propose to take to bridge the gap between the current estimated cost of the one-year programme — £781 million — and the £925 million to which he has just referred? Has he received a commitment from the employers, or is this another case of robbing Peter to pay Paul, to the detriment of the trainees?

Mr. King: If the hon. Gentleman looks at the figures, he will find that the £925 million is only part of the cost for part of the year. The academic year overlaps the financial year. The hon. Gentleman knows that the proposals are the unanimous recommendation of the Manpower Services Commission, comprising the Confederation of British Industry, the Trades Union Congress and independent local education authority interests. I am pleased to support them and keen that they should be introduced at the earliest possible opportunity.

Mr. Dickens: Is it not a fact that for the first time in the history of this country all youngsters under the age of 18 now have the opportunity to continue in full-time education, to take a job or to enter a training scheme that

is relevant and flexible enough to suit their needs? This is something of which we ought to be proud and which my right hon. Friend ought to be saying from the Dispatch Box.

Mr. King: I try to say it on every possible occasion. This is a remarkable achievement, but we are not resting on our laurels. After the success of the one-year scheme we are introducing the two-year scheme. I hope that it will become a permanent feature and improve the training opportunities and work experience of every youngster who wants to take part in the scheme.

Mr. Mason: Is the Secretary of State aware that I have received complaints that 17-year-olds are being refused places on youth training schemes until all 16-year-olds have been catered for? Is that not foolish when young people have decided to take a further year of education to increase their 0-levels so that they will be better equipped for the YTS? Is this a Government directive or a matter for local decision?

Mr. King: They are not being refused places, but 16-year-olds have always been given priority. When we introduced the scheme we guaranteed a place upon it for every 16-year-old, but our ambition was to help as many 17-year-olds as we could. We have fulfilled the guarantee for both the 16-year-olds and the 17-year-olds. There may be a slight blemish in this respect. If the right hon. Gentleman has heard of problems, I hope that he will let us know so that there will be the minimum delay before 17-year-olds are provided with an opportunity to participate in the scheme.

Mr. Favell: Does my right hon. Friend agree that in many cases the one-year scheme has proved to be very successful and that it does not appear to be necessary to have a two-year scheme? For example, in Stockport it is prophesied that over 80 per cent. of those who are on this year's scheme will have a permanent job at the end of it.

Mr. King: The figures for the number of entrants to the youth training scheme going on to full-time jobs are encouraging in many parts of the country. My hon. Friend will recognise that there is wide support among employers and those involved in training for the concept of a two-year scheme, which we are keen to see. I am glad that we have the support of hon. Members, I hope in all parts of the House, and certainly we have the unanimous support of the Manpower Services Commission.

Mr. Sheerman: The right hon. Gentleman knows that he will have the support of Labour Members if he moves towards a two-year quality training scheme. Is he not misleading the House, however, when the facts show that the present budgeting allows for only a one and a half year scheme, 30,000 places cut from the mode B provision and a reduction from 26 weeks off-the-job training, as recommended, to 20 weeks? That is not compatible with a quality two-year scheme.

Mr. King: I am sorry that the hon. Gentleman is already seeking to chip away from what is a determined effort to introduce a quality two-year scheme — [Interruption.] Waving a cutting from a newspaper does not demonstrably prove any argument. I assure the hon. Gentleman that it is our determination to introduce a quality scheme. We want to give the best possible


opportunity to young people. We believe that the scheme, as brought forward unanimously by the MSC, contains within it the right framework to achieve that objective.

European Community (Grants)

Sir Russell Johnston: asked the Secretary of State for Employment whether he has any estimate of the number of jobs created as a result of grants from the European Community.

The Parliamentary Under-Secretary of State for Employment (Mr. Peter Bottomley): Well over a million people a year are taking part in training or job creation schemes supported by the European social fund. More than 150,000 jobs were created or preserved with help from the European regional development fund between 1975 and 1983. Others were created through infrastructure projects.

Sir Russell Johnston: Given that the Government say that they want to encourage individual effort and that 70 per cent. of social fund money goes to the MSC, will the Minister take steps to ensure that the voluntary bodies promoting employment and training get a better share of the money?

Mr. Bottomley: I will do the best I can.

Mr. Teddy Taylor: As every pound that we receive from the Common Market costs the British taxpayer £1·42, could we not create 42 per cent. more jobs if we did not go through the absurd nonsense of wholesaling cash through Brussels and getting less back?

Mr. Bottomley: Given my limited breadth of vision, I can only tell my hon. Friend that with this assistance we are able to do more than we would without it.

Mrs. Clwyd: Is it not a fact that £20 million has been lost to Britain from the EEC budget because money that was allocated for job creation out of the regional and social funds, which could have been spent at any time up to the end of 1984, was not spent? Has that been due to bureaucratic bungling in Brussels, in Whitehall, or in both?

Mr. Bottomley: It would be helpful if the hon. Lady would write to me with details of the £20 million to which she is referring — [Interruption.] There are a number of reasons why certain things happen, as she will know from her experience. For example, the Commission takes decisions with which we sometimes do not agree. In some cases it is a question of people with allocations not fully taking them up. There may be other points concerned with the case that the hon. Lady has in mind. That is why I said that it would be helpful if she would send me details. I can then give her a full response.

Mr. Thurnham: Does my hon. Friend agree that the taxes levied by the EEC destroy jobs?

Mr. Bottomley: Most public revenues have that effect.

Labour Statistics

Mr. Dormand: asked the Secretary of State for Employment what is the total number of people unemployed, those who have been unemployed for more than one year, those who have been unemployed for more than than two years, respectively, at the latest available date.

The Minister of State, Department of Employment (Mr. Peter Morrison): On 11 April 1985 there were 3,273,000 unemployed claimants in the United Kingdom. Of those, 1,334,000 had been unemployed for more than one year and 790,000 for over two years. Since April the total number of unemployed claimants has fallen by 94,000.

Mr. Dormand: Is the Minister aware that if the recent welcome rate of reduction in the number of unemployed is maintained, it will take to the end of the century before the number of unemployed reaches the total when the Labour Government left office? In those circumstances, will he say whether he is one of those who believe that the presentation of policies is wrong, rather than the policies themselves?

Mr. Morrison: I am glad that the hon. Gentleman welcomes the fall of 94,000. However, I do not agree that it will take until the end of the century to achieve that level of unemployment with a reduction of 94,000 every two months.

Mr. Latham: Will my hon. Friend confirm that the community programme is a significant help to the long-term unemployed? What is being done to put in place the increase announced in the Budget?

Mr. Morrison: As my hon. Friend points out, we are increasing the community programme by 100,000 places. That process has already started. In June, 5,000 places were filled; by the end of the year 50,000 places will have been filled; and by next June the whole 100,000 places will have been filled.

Mr. Boyes: The Minister must not try to kid the people in my constituency about unemployment falling, because there are now 8,225 unemployed, which is 690 more than last year. A disappointing reply was given to my hon. Friend the Member for Cynon Valley (Mrs. Clwyd) about the £20 million that has been thrown down the drain. How many people does the Minister think could have got jobs out of that money if it had been claimed and spent on job creation?

Mr. Morrison: I appreciate that the part of the country that the hon. Gentleman represents has a difficult unemployment problem. I was in that area yesterday and met many people involved in the job club in the Durham jobcentre, and 80 per cent. of those involved in it were finding jobs. Therefore, it is possible to find employment in the north-east.

Mr. Lyell: Will my hon. Friend confirm that there is a higher proportion of longer-term unemployed in the south than in the north? Can he explain this strange phenomenon and what can be done to prevent it from continuing?

Mr. Morrison: I can confirm that there is a higher number of long-term unemployed in the south than in the north.

Mr. Evans: Will the Minister acknowledge that mass unemployment, particularly mass long-term unemployment, was a significant factor in the defeat of the Tory candidate in the Brecon and Radnor by-election? Is it not time that the Government recognised that the people no longer accept their fairy stories about economic success and new jobs being just around the corner? Does he accept


that a majority want positive Government action to reduce unemployment, through an increase in public investment rather than tax cuts?

Mr. Morrison: I am surprised that the hon. Gentleman chose to remind the House of the Brecon and Radnor by-election, for which the Leader of the Opposition had claimed a great victory. What happened to the Labour candidate? He did not win.

Mr. Teddy Taylor: asked the Secretary of State for Employment what information he has as to the net change in employment in the European Economic Community and the United States of America, respectively, over the past 10 years.

The Parliamentary Under-Secretary of State for Employment (Mr. Alan Clark): Information for all countries is available only for years up to 1983. My latest estimate is that in the 10 years to 1983, employment in the European Community decreased by about 1 million, a fall of 1 per cent. In the same period, employment in the United States increased by nearly 16 million, a growth of 19 per cent.

Mr. Taylor: Is my hon. Friend aware of any place, apart from El Salvador and possibly Tibet, with a more dismal record of job creation than the EEC? Would it not be better for the unemployed if the Government were to encourage more trade contact with the growth areas of the world instead of with Europe, which is clearly in structural decline?

Mr. Clark: It is better if trade contacts develop naturally rather than in an artificial atmosphere of Government encouragement. The shift of emphasis from employment in manufacturing to employment in services cannot be reflected in our trading relations with the European Community until the Community relaxes some of its restrictions on the freedom of operation in the service sector.

Mr. Maclennan: Would the Common Market more effectively create jobs if the Government objective in completing the internal market, which the hon. Member for Southend, East (Mr. Taylor) is resisting, were carried through?

Mr. Clark: In the last two years, jobs have increased at a faster rate in this country than in Italy, Germany or France.

Mr. Baldry: Does my hon. Friend agree that we would have a better chance of increasing the number of jobs in the European Community if we removed barriers to business in Europe and had an integrated market by 1992, because we wish to remove from business not only burdens but barriers?

Mr. Clark: My hon. Friend is right. The barriers exist principally in the service sector, which is the largest growth sector in the United Kingdom. The meeting of the European Council in Milan issued a statement on this subject, saying that it was looking at the position and was preparing a detailed report on current inadequacies as a result of the growth of employment in the Community compared with its major industrialised competitors. The report also covers new strategies that could be implemented to remedy the situation.

Mr. Haynes: asked the Secretary of State for Employment what are the current numbers unemployed; and what this is as a proportion of the work force.

Mr. Tom King: On 13 June 1985 the number of unemployed claimants in the United Kingdom was 3,179,000, representing an unemployment rate of 13·1 per cent.

Mr. Haynes: Is the Secretary of State aware that the figures that he has just produced are a disgrace to his Government? Is he also aware that he and his Government are massaging the figures by taking people off the register? When will he do a real job as Secretary of State for Employment and get more investment in industry to create the jobs which the unemployed need so desperately? Do something about it.

Mr. King: The hon. Gentleman calls for more investment in industry, but every hon. Member knows that part of the problem that we face results directly from increased investment in industry, which has created a significant proportion of the increase in unemployment. I wholly repudiate suggestions that the figures that I published last week are not accurate. I have published—[Interruption.] I notice that Labour Members are ready enough to accept the figures when it suits them and that they take pleasure in the figures when unemployment goes up, but they seem to resent it bitterly when unemployment goes down.

Sir Dudley Smith: Is my right hon. Friend aware that there has been a welcome improvement in the number of engineering jobs on offer in the west midlands? However, is he also aware that some jobcentre employees are actively discouraging men over 50, or even over 45, from applying for those jobs, on the ground that they are too old? Will he ask them to desist from that practice forthwith, and, even more important, will he make representations to the CBI to get it to encourage men of maturity as well as men with skills?

Mr. King: I am very concerned about what my hon. Friend says, because it is standard practice that jobcentres are required and encouraged to request employers not to impose such age restrictions. I certainly note what my bon. Friend says. If there are further illustrations of the point that he makes, I should like to hear of them.
Having been in the west midlands this morning and seen the reports of the Birmingham chamber of commerce about the encouraging prospects and the surge of orders from home and overseas, I am encouraged to see the improved prospects for the west midlands.

Mr. Terry Fields: Having been to Birmingham today, why did the Secretary of State not take the train a little further north to Liverpool and, during his travels, read the report of Liverpool's city planning officer, which shows that since the Government have been in power 65,000 jobs have gone from the Liverpool area, including 40,000 in manufacturing industry? Is the right hon. Gentleman aware that the report suggests that by the time the Government leave office 100,000 people will be unemployed in Liverpool? The Secretary of State cannot blame that on Liverpool city council. When will he do something about it?

Mr. King: I am interested in the latter part of the hon. Gentleman's question. If he thinks that the present administration in Liverpool city hall is a positive


encouragement to investors and companies to locate in Liverpool, he has a funny idea of the conditions that are necessary for the creation of work and the chances to tackle the serious problems in Liverpool, about which I know as much as any Minister.

Mr. Soames: Will my right hon. Friend remind the House that 65 per cent. of our work force is in work, which is a higher proportion than that in France, Germany or other OECD countries? Does he agree that that is a major coup for the Government?

Mr. King: In the year from January 1984 to January 1985, for which I have the figures, unemployment rose by 140,000 — which is a matter of great concern — while under the Socialist Government in France it rose by 250,000. During the past two years, employment in Germany fell, whereas employment in the United Kingdom increased by 2·6 per cent. I take no comfort from the fact that the United Kingdom is doing better than other countries in Europe. All hon. Members know that we need to create more jobs if we are to make the dent that we need to make in unemployment.

Coal Industry Dispute

Mr. Meadowcroft: asked the Secretary of State for Employment when he intends to reply to the report of the Employment Committee on the reinstatement of National Coal Board employees dismissed during and since the mining dispute.

Mr. Merlyn Rees: asked the Secretary of State for Employment if he will make a statement on the Government's response to the recommendations of the Employment Committee's report on the dismissal of National Coal Board employees.

Mr. Robert Hughes: asked the Secretary of State for Employment if he will make a statement on the Government's response to the recommendations of the Employment Committee's report on the dismissal of National Coal Board employees.

Mr. Tom King: I have read the report of the Select Committee on Employment. The Government are quite clear that reinstatement of the dismissed miners is entirely a matter for the National Coal Board, which is continuing to review all dismissal cases area by area and in the light of industrial tribunal findings. I understand that the NCB has made it clear that there can be no question of re-employing men who have engaged in serious violence against NCB personnel or property. The Government fully support that view.

Mr. Meadowcroft: How worried is the Secretary of State about the threats to the unity of the mining industry from the different practices carried out by different NCB areas, paralleled, alas, by the fragmentation of the National Union of Mineworkers? To what extent is he interested in assisting the mining industry by encouraging the chairman of the NCB to have a policy which does not treat people differently in different areas?

Mr. King: I know that the chairman and the board take that point seriously. Nobody should underestimate the appalling difficulties and serious nature of the problems with which they must deal. I know that in the remarkable circumstances surrounding the appalling dispute they have been anxious to deal with the problem as fairly as possible.

Mr. Rees: Is the Secretary of State worried about the evidence given in the report? Some men who were found guilty and returned to work early have kept their jobs, while others who were found not guilty but who did not return to work have lost theirs. Should there not be a right of appeal outside the NCB — a right based on natural justice — and should not the Secretary of State tell the NCB that?

Mr. King: The right hon. Gentleman knows that the matter must be the responsibility of the management of the NCB. It must deal with the problem and the dismissed miners, who have the normal procedures open to them.

Mr. Hughes: Does the Minister recollect that the cardinal principle of good industrial relations is that, after a dispute, the watchwords should be conciliation and reconciliation? Does he agree that it is outrageous that not one miner in Scotland has been reinstated — not even miners who stood trial and were acquitted? Bearing in mind some of the Secretary of State's distinguished predecessors, such as the late Lord Monckton, who was Minister of Labour, does he agree that it would be a good idea to put pressure on the NCB to adopt the modest proposals of the Select Committee on Employment and institute a proper overall review procedure?

Mr. King: A cardinal principle of all good industrial relations is always to hold a ballot before taking industrial action. I hope that that will now be firmly established. If there had been a ballot, many of these unfortunate circumstances might have been avoided. The NCB has made it clear that it is continuing to review the cases. It has reinstated significant numbers of miners, and it has looked at the cases in the light of industrial tribunal findings. I hope that the hon. Gentleman will find my answer helpful.

Mr. Gorst: Will my right hon. Friend bear in mind before he replies to the Select Committee's report that the report was not about the unfair dismissal of miners, for which there is recourse to an industrial tribunal, but about allegations of unfair reinstatement of miners, for which there is no recourse to any tribunal?

Mr. King: I am somewhat surprised at my hon. Friend's question because I have here a report entitled, "The Dismissal of National Coal Board Employees".

Mr. Leighton: Is the Secretary of State aware that the Select Committee report did not consider the merits of the coal strike or violence—it in no way condoned violence — but the quite separate issue of evidence of the manifest unfairness of and glaring inconsistencies in the NCB's treatment of its dismissed employees? Is he aware that in Scotland there have been representations from chief constables and leaders of all the Churches on this matter? Is he further aware that, under repeated questioning, Mr. MacGregor refused to say that he would reinstate those miners whose cases had been upheld by industrial tribunals? In those circumstances, does he agree that the proposal for a review conducted along the lines of the ACAS code, under which each man's case could be represented, is modest? Should he not take heed of that rather than allow this wound to fester?

Mr. King: I note what the hon. Gentleman says. The report did not deal with that. I think that I am not the only right hon. or hon. Member who found it unbelievable that the Select Committee could report on this matter without


once considering the appalling violence and intimidation that affected people who were not given any opportunity to say whether they wished to work. That was a grave omission.

Mr. Rowe: Does my right hon. Friend agree with half of the ordinary members of the Select Committee, who believe that it is wiser to leave reinstatement to the NCB area by area? Does he further agree that the sense of that was well demonstrated by the young man found not guilty of murdering a taxi driver nevertheless now asking for reinstatement, although he was clearly considerably engaged in the discussions about that action?

Mr. King: I have already said that these must be matters for the NCB. It has made quite clear the basis on which it will deal with such matters. It is not right to try to suggest that this is some ordinary dispute or incident. We recognise the difficult circumstances that existed. This is the right method by which to proceed. I note that rather more than 400 miners have been reinstated under the procedures operated by the NCB.

Mr. Lofthouse: In view of his office, does the right hon. Gentleman feel obliged to say whether he supports the system under which a person can face trial, be found not guilty but then be found guilty by a MacGregor kangaroo court?

Mr. King: There are times when people are dismissed although charges may not be preferred against them. It all depends on what basis the case was made. I can perfectly well understand that there might be circumstances under which people are acquitted of certain charges but are still dismissed on other grounds.

Mr. Peter Bruinvels: Is my right hon. Friend aware that the working miners of Leicester found the Select Committee report shattering and disappointing? Does he appreciate the feelings of those brave working miners, who saw property demolished, miners being intimidated and violence on the picket line? They find it incredible and unacceptable that miners should now be considered for reinstatement. That is not the way in which to run the country.

Mr. King: The working miners of Leicestershire were not alone in holding that view about the report. The Select Committee system works best when reports are unanimous. This report is clearly not unanimous, as the Committee was bitterly divided. It was not the most successful report of the Employment Select Committee.

Mr. Prescott: Is it not deplorable that the Secretary of State can have a view about a Select Committee's recommendation on procedures for the review of dismissal arising out of an industrial dispute and not give his attitude towards the principle? Since the Secretary of State has made a statement that he is considering new legislation to deal with victimisation by the trade unions of those people involved in industrial disputes, is he prepared to consider victimisation by the employers and ensure that all employers abide by the recommendations of ACAS dealing with unfair dismissal?

Mr. King: As the hon. Gentleman knows, that is already law, and there is access to industrial tribunals.

Mr. Wilson: Why will the Secretary of State not pay any attention to the questions that have been raised about the Scottish situation, where there is to be no review,

where there is to be no reinstatement and where Scottish miners, some of whom have not been convicted of any offence, seem to have been singled out for discriminating treatment? Does not the Scottish situation require his immediate intervention?

Mr. King: My understanding is that the individual cases in Scotland are being reviewed on the same basis as elsewhere.

Youth Training Scheme

Dr. Godman: asked the Secretary of State for Employment what representations he has received concerning the proposed two-year youth training scheme.

Mr. Kenneth Carlisle: asked the Secretary of State for Employment whether he will make a statement on progress in setting up the second year of the youth training scheme.

Mr. Peter Morrison: My right hon. Friend announced on 1 July that he had approved the broad framework of the Manpower Services Commission's proposals for a two-year youth training scheme. These were drawn up after extensive consultations with employers, trade unions, local authorities, education interests and others.

Dr. Godman: In these consultations, has the Minister outlined what steps are to be taken to ensure that the training element in this two-year scheme will be improved, and has he given guarantees that those youth trainees completing a two-year youth training scheme will be offered a job?

Mr. Morrison: As far as the quality of the training is concerned, 20 weeks is the minimum for the two-year scheme. As to the certification, we are working on that so that they have a certificate at the end. As the hon. Gentleman knows, there can be no guarantee of a job at the end of the scheme, but certainly it enhances the job prospects of all the 16 and 17-year-olds who go on it.

Mr. Kenneth Carlisle: The second year youth training scheme will be the greatest help to school leavers seeking a job. However, is my hon. Friend aware that in Germany the two-year scheme costs £3,600 per trainee, the bulk of which is met by the employer? In sharp contrast, our scheme will cost £3,800 per trainee, most of which will be met by the Government. Does he agree that this shows not only the Government's commitment to training but also that we can expect employers to invest far more in training in the future?

Mr. Morrison: I certainly agree with my hon. Friend that the German example of employers making a major contribution is something to be followed, and we have reason to believe that in this country the employers will be making a significant contribution to the two-year youth training scheme.

Mr. Ron Brown: Is it not the case that the YTS is simply a front for cheap labour and a means of keeping down wages in order to establish a new-style Hong Kong in this country? That is the reality of the situation and why so many youngsters in the country realise what the Government are up to. It is a simple con.

Mr. Morrison: The answers to the hon. Gentleman's first three questions are no, no and no. So far as the


trainees are concerned, he may be aware that some 84 per cent. think that the scheme is worth while or very worth while, so again he is wrong.

Mr. Colvin: Can my hon. Friend tell the House how many places on the two-year YTS are likely to be made available by the armed forces, and if critics of that form of sponsorship criticise it as being voluntary national service by the back door, can he see anything particularly wrong with that?

Mr. Morrison: My hon. Friend asks how many places there will be in the armed services scheme. It will be of the order of 2,200. It is a totally voluntary scheme, and he may be interested to know that in the year 1984–85 3,400 youngsters applied to go on the scheme.

Apprenticeships

Mr. Alton: asked the Secretary of State for Employment whether he is satisfied with the current level of apprenticeships.

Mr. Alan Clark: The numbers entering traditional apprenticeships are becoming increasingly irrelevant as a measure of the real level of skills training being undertaken by industry arising out of the reform and modernisation of existing arrangements and the substantial provision of initial skills training under the youth training scheme.

Mr. Alton: Given the Secretary of State's criticism in The Times this morning of the fact that this country spends seven times less than the United States and 14 times less than West Germany on provision for training, does the Minister agree that it is time that we introduced the West German system of statutory apprenticeships, which are the best quality training that can be given? When he describes apprenticeships as irrelevant, does he believe that people who commission someone to work in their homes will be as satisfied with someone from the YTS—worthwhile as some of those schemes may be — as they would be if they had a proper apprentice?

Mr. Clark: The hon. Gentleman referred to a proper apprentice. The whole nature of training has gone through a major sea change which reflects the transition from manufacturing to service industries and from heavy to high-tech industries. The Government have more than doubled expenditure on training since they took office. Government grants are available to help employers with apprentice training but all the money provided has not been taken up.

Mr. Lawler: Does my hon. Friend agree that the best way to encourage more apprentices is to encourage more companies to remodel their apprenticeship schemes to incorporate YTS, as has already been successfully done by the electrical contracting industry?

Mr. Clark: Yes, Mr. Speaker. One of the features of the electrical contracting industry's scheme is that it negotiated a completely revised wage structure, which reduced pay from £43 to £27. As a result, first-year apprenticeships have trebled.

Mr. Gordon Brown: With regard to the level of apprenticeships, is the Minister aware that one of the 204 miners sacked in my constituency was a Coal Board apprentice? He was sacked without having the opportunity

to put his case to his employer. Does the Minister support employers sacking people without giving them the chance of a fair hearing?

Mr. Clark: I am aware that the House does not like this type of answer, but clearly with such a case the hon. Gentleman must put the argument in writing.

Trade Unions (Ballots)

Mr. Hunter: asked the Secretary of State for Employment how many trade unions have now applied to the certification officer for reimbursement of the cost of ballots, under the provisions of section 1 of the Employment Act 1980; and what has been the total amount paid to trade unions under this section.

Mr. Peter Bottomley: Thirty-two trade unions have applied to the certification officer under the provisions of section 1 of the Employment Act 1980 for reimbursement of costs incurred in holding secret ballots. Payments made total about £1·4 million.

Mr. Hunter: Does my hon. Friend agree that what he has just said irrefutably demonstrates the wisdom underlying the 1980 measure and provides further evidence of the Government's success in reforming previous employment legislation?

Mr. Bottomley: Yes, Sir. In particular, it deals with those people who are unwilling to come out and say openly that they oppose secret and democratic ballots, but argue against them on the ground of cost. They have no argument on the ground of costs and they had better come clean and say whether they believe in secret ballots.

Mr. Prescott: Is the Minister aware that the latest ballot conducted by the General Municipal, Boilermakers and Allied Trades Union cost £250,000, and that the result, whether the vote was taken at the work place or by secret ballot, showed a 9:1 ratio in favour of maintaining a political fund? Is that not an adequate answer to the scurrilous charge made by the right hon. Member for Plymouth, Devonport (Dr. Owen) during a previous Question Time about an unfair ballot?

Mr. Bottomley: I do not believe that the hon. Gentleman wants or expects me to become involved in a spat which he may have in the House with other political parties. At some convenient moment, will he say whether he believes in ballots and whether he draws the same conclusion as I did—that if one spends £250,000 giving a one-sided argument one may obtain a one-sided result? One of the important issues that people should consider is whether they believe that their trade union fulfils its purpose by being associated with one political party and whether the trade union leadership is willing to accept that it has members who support different parties and who may change their allegiance. Trade unions would be better advised to pay more attention to such people.

Mr. Fry: Is my hon. Friend aware that in a ballot on the future of the political donation, ballot papers were sent to my constituents who had not been members of the Amalgamated Union of Engineering Workers for four years? Does that not show that there is a need for ballots to be properly organised, otherwise people who are not members of a union can take part in elections for officers and decisions on the political levy?

Mr. Bottomley: My hon. Friend makes a sensible point. Even with full postal ballots there are difficulties. Mailing lists can get out of date. For example, I recently received a letter addressed to the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) who in 1968 held the job that I now have.

Equal Pay

Mr. Freud: asked the Secretary of State for Employment what comparisons he has made with other members of the European Community with regard to the progress towards equal pay for women.

Mr. Alan Clark: All member states of the European Community are required by article 119 of the Treaty of Rome and the equal pay directive to provide equal pay for men and women doing equal work.

Mr. Freud: When does the Minister intend to amend the Equal Pay Act so that women in this country have a primary right to receive equal pay for work of equal value?

Mr. Clark: I do not know where the hon. Gentleman has been for the past two years. We have complied with the ruling of the European Court of Justice and introduced those provisions by an order which makes that a requirement on employers. If an employee feels that an employer is not complying with the provisions, we have set up tribunal machinery to ensure compliance with the European Court of Justice ruling.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Wareing: asked the Prime Minister if she will list her official engagements for Tuesday 9 July.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in this House I shall be having further meetings later today.

Mr. Wareing: Does the reported decision of the Secretary of State for the Environment to scrap the present system of constraints on local authority finance through penalties and targets denote the first part of the Government's U-turn in response to their failure to hold the seat in the Brecon and Radnor by-election? What further concessions are likely as the Government go further down the slope towards electoral disaster?

The Prime Minister: No final decisions have yet been taken on the rate support grant settlement for 1986–87. The hon. Gentleman will be aware that on 16 January 1985 my right hon. Friend the Secretary of State for the Environment said:
I should like to be able to abandon targets and holdback
but that
Much depends on the level of local authority spending in the coming year". — [Official Report, 16 January 1985; Vol. 71, c. 338.]

Mr. Ian Lloyd: In the context of President Reagan's timely reminder yesterday that the campaign against terrorism worldwide must be indivisible, is my right hon. Friend aware of any event which throws a more glaring light on the squalid and contemptible character of political opportunism than the appearance on a public platform in the centre of London, with a representative of an

organisation with objectives and methods indistinguishable from those of the IRA, of a member of the Privy Council, the Leader of the Opposition? Can my right hon. Friend do anything to ensure that the authority and prestige of the Privy Council are not illegitimately transferred in that way?

The Prime Minister: My hon. Friend has made his point very cogently and I am glad that he has brought the matter to more public attention.

Mr. Hattersley: Does the Prime Minister endorse the judgment of her Chancellor that ours is the most successful economy in western Europe, or have her civil servants had the opportunity during her busy day to explain to her the phoney nature of the statistics on which that claim was based?

The Prime Minister: My right hon. Friend the Chancellor was endeavouring to point out the fact that no other country in Europe has such a good record as Britain in the creation of new jobs in the past year.

Mr. Hattersley: It is clear that the Prime Minister has not read what the Chancellor said. He said that we had the best growth rate in western Europe, but the statistics, which I assume were available to him, show that only one EEC country had a worse growth rate than ours. Does the Prime Minister endorse or repudiate the Chancellor's manipulation of the figures?
Secondly, while we are on the subject of Government achievements, will the Prime Minister now answer the question that I asked her 10 days ago, but which she ducked twice then and has continued to duck, and confirm that she has presided over the highest ever levels of unemployment, company liquidation, real interest rates, mortgage rates and manufactured trade deficit in the history of this country?

The Prime Minister: May I point out to the right hon. Gentleman that we have also presided over record output, record standard of living, record investment and record overseas assets.

Mr. Hattersley: I simply ask the Prime Minister to answer the question that I have now asked her on three occasions: are the allegations that I make about the record catastrophes over which she has presided true or false?

The Prime Minister: I do not influence the right hon. Gentleman's questions. He must not influence my answers. [Interruption.] We have record output, record standard of living, record investment and record overseas assets. I only regret that the Leader of the Opposition is not here so that I can say it to him.

Mr. Alan Howarth: Does my right hon. Friend agree that lower taxes achieved as a result of the privatisation programme would be valuable and welcome, but that the only way to secure for the longer term a low-taxation economy, with all its benefits for employment, is to hold absolutely firm against the pressures for raising public expenditure, and to reduce public expenditure as a proportion of gross domestic product?

The Prime Minister: Yes, Sir. I believe that most people would prefer more net take-home pay. The only way to achieve that is to reduce taxation or increase growth in the economy. Both need room to be made for private enterprise and growth in the private sector.

Mr. Steel: Does the Prime Minister recall telling us last Tuesday how glad she would be to welcome here the Conservative candidate for Brecon and Radnor as the new Member of Parliament? As in her newspaper interview yesterday she dismissed with contempt some of her colleagues as flexi-toys, have not they been proved right in suggesting that she is out of touch with the electorate? How would she describe the people of Brecon, now that they have spoken for Britain?

The Prime Minister: I congratulate the winner of the Brecon and Radnor by-election on his victory. I note that the tenure of those in seats won by Liberal and Social Democratic candidates in by-elections tends to be rather short, as my hon. Friends the Members for Sutton and Cheam (Mr. Macfarlane), for Skipton and Ripon (Mr. Watson), for Crosby (Mr. Thornton) and for Croydon, North-West (Mr. Malins) will testify.

Mr. Patrick McNair-Wilson: Has my right hon. Friend yet had time to reflect upon the demand from the Director General of the Confederation of British Industry for an immediate 2 per cent. cut in the base rate? What reply would she give to him, bearing in mind the fact that many of the world's economic indicators, including oil, continue to present a confusing picture, and our own inflation rate still requires a firm hand?

The Prime Minister: I think that my hon. Friend found the reply in his last few words. Our own inflation rate still requires a very firm hand. As my hon. Friend is well aware, it is not possible to say anything about the interest rate from this Dispatch Box other than that one does not wish it to be high for a moment longer than the inflation rate requires.

Mr. Skinner: asked the Prime Minister if she will list her official engagements for Tuesday 9 July.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Skinner: Does the Prime Minister recall that, in the 1970s, many hon. Members on both sides of the House tried to take the lid off the Crown Agents scandal? Is she aware that another City scandal, relating to Johnson Matthey Bankers, has not been properly dealt with in the House by the Chancellor of the Exchequer or by herself? Is she further aware that yesterday 135 hon. Members tried to table a motion which would have enabled the House to debate the matter during our proceedings on the Finance Bill today? Why does she not do the decent thing and tell the Governor of the Bank of England to publish the Price Waterhouse report, so that we can know the truth about this sordid affair? Or is the real truth that some of those City crooks are a little too close to home for comfort?

The Prime Minister: The hon. Gentleman is well aware that my right hon. Friend the Chancellor of the Exchequer made a full statement to the House and was questioned on it. I have nothing further to add to that statement.

Mr. John Townend: asked the Prime Minister if she will list her official engagements for Tuesday 9 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Townend: When will the Government stop giving the impression in the country that public expenditure is

being reduced when the facts show that public expenditure is inexorably increasing? Will my right hon. Friend ensure that the Fowler review produces substantial savings in social security, which can be used to take the low-paid completely out of tax?

The Prime Minister: As my hon. Friend is aware, the Chancellor's policy is to restrain total public expenditure, but within that total to carry out our pledges on priorities. My hon. Friend will be aware of what those pledges were: defence, law and order, the Health Service and pension provision. Those have been fully honoured within the total restrained public expenditure, and it is still our policy to endeavour to make further reductions in direct taxation. Had the Labour Government's rate of taxation held, people would be paying £6 billion more in income tax than they are now.

Mr. Robert Sheldon: Does the Prime Minister now believe in the middle way? If she does, will she define it?

The Prime Minister: I believe in the right way. It is the way in which we are going.

Mr. Colvin: asked the Prime Minister if she will list her official engagements for Tuesday 9 July.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Colvin: Will my right hon. Friend take time today to reflect on the meeting yesterday with the Chiefs of Defence Staff, contrasting the Conservative party's united policy on nuclear deterrence with the divided policies of the SDP and the Liberal party? Will she acknowledge that although middle-of-the-road policies may be all right for some, driving all over the road is dangerous for everyone, and that the more help the Liberal party can get from the British School of Motoring, the better?

The Prime Minister: I do not know the policies of the Liberal party or the SDP on nuclear deterrence. They seem to be at sixes and sevens. The Conservative party is the only one that has a firm policy. The Government's policy is that of a firm independent nuclear deterrent, the firm defence of everything in which we believe and honourable and loyal membership of the NATO Alliance.

Mr. Winnick: Is the Prime Minister aware that, following Brecon and Radnor, many Labour supporters would welcome the appointment of the Secretary of State for Trade and Industry as chairman of the Conservative party? Is she further aware that Labour supporters could hardly ask for more than she and the Secretary of State being principally responsible for putting across the Government's message?

The Prime Minister: Labour supporters have nothing to boast about at present.

Mr. Dykes: On economic management, is not the reality that we need all the instruments of economic demand management, including lower interest rates, lower taxes and more capital spending on public and private account to create new jobs?

The Prime Minister: I would dearly like to have more capital spending, but not more total spending. My hon. Friend will be aware that if we want more capital spending, we must have less current spending, unless we put a higher burden of taxation on the working population. We are not entitled to put a higher burden of taxation on


the 40 per cent. of pensioners who pay income tax, or on the 41 per cent. of those who pay income tax but who earn below average male earnings. My hon. Friend will find that we are following the right overall policy.

Mr. Donald Stewart: Is the right hon. Lady aware that, although reductions in income tax for the lower paid will be generally welcomed, it is grossly offensive to the bulk of wage and salary earners to presume that their first priority is a reduction in income tax? Most people are not so greedy and selfish as to have that as their main aim. They would prefer action by the Government to put the unemployed back to work.

The Prime Minister: I believe that most people think that they are entitled to a larger share of their hard-won earnings in their own pockets. If the right hon. Gentleman takes a different view, perhaps he will say how much tax he would levy on those many people who would prefer to have their taxation reduced.

Mr. Dubs: asked the Prime Minister if she will list her official engagements for Tuesday 9 July.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Dubs: Is the Prime Minister aware that during the first five years of her Government the crime rate increased by nearly 40 per cent.—about double the rate during the five years under the last Labour Government? Despite all her talk about pledges on law and order, more money for the police, and so on, is it not a fact that the criminals have never had it so good?

The Prime Minister: I believe that we have never had a more effective police force or one with higher morale and greater efficiency. I should have thought that the hon. Gentleman would join in congratulating the police on their excellent record.

Oral Answers to Questions — NEW MEMBER

The following Member took and subscribed the Oath:

Richard Arthur Lloyd Livsey, Esq., for Brecon and Radnor.

Oral Answers to Questions — STATUTORY INSTRUMENTS, &amp;C.

Mr. Speaker: By leave of the House, I shall put together the Questions on the nine motions relating to statutory instruments.

Ordered,
That the draft Merchant Shipping (Fire Protection) (Ships Built Before 25th May 1980) Regulations 1985 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Merchant Shipping (Fire Protection) (Amendment) Regulations 1985 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Merchant Shipping (Fire Appliances) (Amendment) Regulations 1983 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Agricultural Products Processing and Marketing (Improvement Grant) (Amendment) Regulations 1983 be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Agriculture and Horticulture Development (Amendment) Regulations 1985 (S.I., 1985, No. 1025) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Agriculture Improvement Regulations 1985, be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Agriculture Improvement Scheme 1985 (S.I., 1985, No. 1029) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Severn Bridge Tolls Order 1985 (S.I., 1985, No. 726) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the draft Maximum Number of Judges (Scotland) Order 1985 be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Garel-Jones.]

Oral Answers to Questions — EUROPEAN COMMUNITY DOCUMENTS

Mr. Speaker: By leave of the House, I shall put together the Questions on the two motions on European Community documents.

Ordered,
That European Community Documents Nos. 9153/82 and 6544/83, draft Directive and Amendment on crude oil saving through the use of substitute fuel in petrol; and 8369/83 and 7959/84, draft Directive and Amendment on rationing for commercial and road transport between Member states in the case of fuel shortage, be referred to a Standing Committee on European Community Documents.
That European Community Documents Nos. 10211/82, draft Directive concerning the labelling, presentation and advertising of beer, cider and perry, and 9452/83, two draft Regulations laying down rules for the description and presentation of wine, grape must and special wines, be referred to a Standing Committee on European Community Documents. — [Mr. Garel-Jones.]

Criminal Justice (Scotland) (Amendment)

Mr. Gerald Malone: I beg to move,
That leave be given to bring in a Bill to impose a mandatory minimum sentence of three months' imprisonment in respect of persons of 21 years of age or over or of three months' detention in respect of any person who is not less than 16 but under 21 years of age who is convicted of the offence of breach of the peace or any offence involving violence against a third party committed within the relevant area of a designated sports ground or a public service vehicle or railway passenger vehicle being operated for the principal purpose of conveying passengers to or from a designated sporting event.
The purpose of the Bill which I seek to introduce is to amend the Criminal Justice (Scotland) Act. It is yet another measure of a sort that we have seen before the House this Session to stamp out football violence. As the nation watched with growing disbelief the shame of Britain at the Heysel stadium some months ago, two important lessons hit home. The first was that football matches were without doubt the chosen arenas for those who have the 20th century gladiatorial instinct. The second was that our complacency on this problem has endured for too long.
We have seen considerable progress with the passage of legislation, with all-party support, to ban alcohol at designated sporting events throughout the United Kingdom. It seems almost unbelievable that what we were told by England and Welsh Members a few months ago was impossible is now in legislative form and will be on the statute book before the end of the Session.
We in Scotland have had the benefit of similar legislation for about five years, and it has worked well, but each of those five years is a silent witness to our incapacity and unwillingness until now to grasp what has been an ever-increasing and growing problem throughout the United Kingdom. However, the Bill applies especially to Scotland. It is a timely reminder that we in Scotland risk falling into the same complacency trap. We pride ourselves on having avoided it, but unfortunately football violence is again escalating within Scotland.
There is a new villain who is attending Scottish football matches, and he is called the soccer casual. He is dressed in smart clothes. He is usually dressed in denims and a cashmere sweater. He is fairly respectable looking. He will have a short haircut and often he will be middle class with a considerable amount of money in his pocket. He is also brutal. He is a sort of Sunday supplement soccer hooligan and he is new on the Scottish scene. For him, fines are no deterrent. It is a badge of honour for him and his friends to appear before a court, to be found guilty of an offence and to be fined. These new hooligans collectively shrug that off. If we are to tackle this new menace, we shall need a new form of specific deterrent.
The problem is a real one. During a recent Scottish sheriff court case, a document was provided to the court which showed clearly that Aberdeen soccer casuals were intent, having run riot in Scotland during the past year, on taking the problem south of the border. The document revealed that they were issuing a challenge to fans in England to try to meet the standard of behaviour that they had been displaying in Scotland.
The Bill seeks to impose mandatory minimum sentences on soccer thugs. It will do two things. First, I believe that it will underline our determination as a legislative body to fight soccer thuggery wherever and whenever it occurs. That will be apparent in the United Kingdom and, at a sensitive time, abroad as well.
The Bill will support our police forces, which are finding it difficult to cope with the new phenomenon of the soccer casuals. It will provide a sharp edge to their efforts to isolate and to stamp out this form of violence. It will emphasise that no act of violence, however small, can be tolerated within the grounds of a football stadium. However small the initial act of violence, it will not matter. The lesson that we learnt from the events within the Heysel stadium was that small acts of violence can lead to larger riots. If we are to see soccer progress and to continue as something approaching a national sport, we cannot allow violence to continue.
Many of our football clubs, including many in Scotland, are rising to the modern challenge of football thugs. In the Aberdeen football stadium a substantial amount of investment has been made and the club has shown its willingness, and its faith in its supporters, to stamp out hooliganism. Football clubs which attempt to do this deserve the support of legislation. When the Aberdeen football club sends its supporters abroad to European events, it sends them as ambassadors for Aberdeen and Scotland as well. However, unless we stamp out the menace of soccer casuals, that could change.
The Bill is a step towards bringing the family back to the football stadium in Scotland and towards reestablishing the image of one of our most important national sports. I hope that it will receive the support of the whole House.

Question put and agreed to.

Bill ordered to be brought in by Mr. Gerald Malone, Mr. Michael Hirst, Mr. Albert McQuarrie, Mr. John Corrie and Mrs. Anna McCurley.

CRIMINAL JUSTICE (SCOTLAND) (AMENDMENT)

Mr. Gerald Malone accordingly presented a Bill to impose a mandatory minimum sentence of three months' imprisonment in respect of persons of 21 years of age or over or of three months' detention in respect of any person who is not less than 16 but under 21 years of age who is convicted of the offence of breach of the peace or of any offence involving violence against a third party committed within the relevant area of a designated sports ground or a public service vehicle or railway passenger vehicle being operated for the principal purpose of conveying passengers to or from a designated sporting event: And the same was read the First time; and ordered to be read a Second time upon Friday 25 October 1985 and to be printed. [Bill 186.]

PROCEDURE (FUTURE TAXATION)

Resolved,
That, notwithstanding anything to the contrary in the practice of the House relating to matters which may be included in Finance Bills, any Finance Bill of the present Session may contain provisions taking effect in a future year with respect to the exemption from capital gains tax and corporation tax on chargeable gains of gains on disposals of gilt-edged securities and qualifying corporate bonds.—[Mr. Garel-Jones.]

WAYS AND MEANS

STAMP DUTY (RENOUNCEABLE LETTERS OF ALLOTMENT ETC.)

Resolved,
That provision may be made restricting the exemptions from duty provided by section 65(1) of the Finance Act 1963 and section 14(1) of the Finance Act (Northern Ireland) 1963.

GROUP RELIEF

Resolved,
That provision may be made with respect to relief under section 258 and the following sections of Chapter I of Part XI of the Income and Corporation Taxes Act 1970 (group relief).

WITHDRAWAL OF CERTAIN TAX CREDITS

Resolved,
That provision may be made for and in connection with the withdrawal in certain cases of relief under section 86 of the Finance Act 1972 (tax credit for certain recipients of qualifying distributions) in respect of distributions made on or after 1st April 1985.

SECURITIES (No. 2)

Resolved,
That charges to income tax and capital gains tax may be imposed by provisions about transactions occurring on or after 1st January 1985 in relation to securities.—[Mr. Moore.]

Orders of the Day — Finance Bill

Not amended (in the Committee) and as amended (in the Standing Committee), considered.

Mr. Brian Sedgemore: On a point of order, Mr. Speaker. I accept that your discretion in which new clauses should be debated, is absolute, but I wonder whether you could give me some help, as I am in extreme difficulties. New clause 14 stands in my name and in the names of 133 of my right hon. and hon. Friends. Its purpose is to reduce the tax liabilities of Johnson Matthey on the ground that its shareholders have been the subject of fraud by people to whom loans have been made by the auditors and directors.
I do not intend to deal with the merits or otherwise of the clause, but when it was found yesterday that it was not on the provisional selection list I wrote a letter to you, Mr. Speaker, saying that right hon. and hon. Members were putting their names in droves to it. In fact, 134 right hon. and hon. Members have now put their names to it. This is an unusually high number and shows the extraordinary strength of feeling by the Opposition about this matter.
When I came in this morning I understood that you were having another look at the list. As new clause 14 was not on the list, I have been back to Hackney and discussed the selection with some of the people there. They have said to me, possibly wrongly, that they know that my intention, as a representative of the poorest borough in the country, is to criticise some of the richest and most powerful people in the City. They believe that the Establishment will riot let me get away with this. You know that the Chancellor of the Exchequer and I had a brush about whether or not there is fraud in this House. He was wrong and I was right. I have here a file which contains only a fraction of what I know about fraud at Johnson Matthey. We are discussing a Finance Bill to which a new clause has been tabled which I am told is in order and 134 right hon. and hon. Members wish to discuss it, and it is extraordinary that it is not to be called. We need your help on this matter, Mr. Speaker.

Mr. Dennis Skinner: Further to that point of order, Mr. Speaker, I wonder whether we could find a way round this problem. The Bill is to be discussed not only today but tomorrow, which means that there will be ample opportunity for you to have consultations and to find ways and means by which this matter can be discussed in the House. It has not been dealt with properly. My hon. Friend the Member for Hackney, South and Shoreditch (Mr. Sedgemore) has information which is very important. The proper democratic processes should be carried out. We have had only a statement on Johnson Matthey. We have been refused a debate by the Government. It seems that we are being gagged everywhere we go.
It is well known that many people prominent in Tory circles have some connection with Johnson Matthey and what took place. We are concerned about the fact that the Governor of the Bank of England, Leigh-Pemberton, was put there by the Prime Minister because he was, in her words, "one of us."
It is imperative, therefore, that we debate this matter. We appeal to you, Mr. Speaker, to find a way to enable this issue to be dealt with, if possible as we discuss the Bill.

Mr. D. N. Campbell-Savours: You will know, Mr. Speaker, that I was the hon. Member who originally tabled the nine new clauses in an effort to extract a debate on Johnson Matthey. However, of the nine, only two were found to be in order. I tabled those new clauses because people inside and outside the House were asking why Parliament had so far failed to discuss the matter.
Time and again the Leader of the House has refused at business question time on Thursdays, when answering questions from my hon. Friends and me, to allocate time for a debate. Thus, the only means available to us to secure a debate was to table the new clauses. We hoped that, if they proved to be in order, you, using your discretion, Mr. Speaker, would allocate time for such a debate.
While not questioning the decisions that you make, Mr. Speaker — and I am sure that in making them you consult widely with those concerned with all the issues—I gather that it is within your power, even at this late stage, to reconsider your selection. Overnight, 134 of my hon. Friends put their names to the new clauses. At least another 50 would have signed had there not been a deadline of 9 pm in the Public Bill Office for the submission of names. Indeed, as many as 200 might have submitted their names by this morning.
Is that not an indication of the concern among hon. Members about the need for this whole issue to be fully discussed? In the light of that expressed concern, will you reconsider your decision, Mr. Speaker? The country wants to know what has happened. People cannot understand why Parliament refuses to debate the subject, particularly as, potentially, several hundred million pounds of public money is directly involved in saving this bank?

Mr. Speaker: I received a letter from the hon. Member for Hackney, South and Shoreditch (Mr. Sedgemore) asking if I would look into the matter again. I have spent a considerable time considering the matter. I well understand the interest of hon. Members and I appreciate that overnight a large number of hon. Members added their names to the new clauses. However, I am not able to change my selection, and I have nothing further to say on the subject.

Ordered,
That the Finance Bill, as amended, be considered in the following order, namely, New Clauses in the name of Mr. Chancellor of the Exchequer (NC24, NC30 and NC32), other New. Clauses except that in the name of Mr. Roy Hattersley and relating to mitigation of corporation tax liability of industrial and provident societies and housing associations (NC9), that excepted New Clause, Amendments relating to Clause 1, Schedule 1, Clauses 2 to 4, Schedule 4, Clauses 5 and 6, Schedule 3, Clause 7, Schedule 4, Clause 8, Schedule 5, Clauses 9 to 12, Schedule 6, Clauses 13 to 23, Schedule 7, Clauses 24 to 30, Schedule 8, Clauses 31 to 40, Schedule 9, Clauses 41 to 45, Schedule 10, Clauses 46 and 47, Schedule 11, Clauses 48 to 53, Schedule 12, Clauses 54 and 55, Schedule 13, Clause 56, Schedule 14, Clause 57, Schedule 15, Clauses 58 to 63, Schedule 16, Clauses 64 and 65, Schedule 17, Clauses 66 and 67, Schedule 18, Clause 68, Schedule 19, Clauses 69 to 73, Schedule 20, Clause 74, Schedule 21, Clauses 75 to 81, Schedule 22, Clauses 82 to 89, Schedule 23, Clause 90, Schedule 24, Clauses 91 to 94, New Schedules and Amendments relating to Schedule 25.—[Mr. Peter Rees.]

New Clause 24

RENOUNCEABLE LETTERS OF ALLOTMENT ETC.

"(1) Subsection (2) below applies where there is an arrangement whereby—

(a) rights under an instrument are renounced in favour of a person (A),
(b) the rights are rights to shares in a company (company B), and
(c) A, or a person connected with A, or A and such a person together, has or have control of company B or will have such control in consequence of the arrangment.

(2) The instrument shall not be exempt by virtue of section 65(1) of the Finance Act 1963 (renounceable letters of allotment etc.) or section 14(1) of the Finance Act (Northern Ireland) 1963 (corresponding provision for Northern Ireland) from stamp duty under or by reference to the heading "Conveyance or Transfer on Sale" in Schedule 1 to the Stamp Act 1891.

(3) References in this section to shares in company B include references to its loan capital to which section 126(1) of the Finance Act 1976 does not apply by virtue of section 126(2) or (3) (convertible loan capital and excessive return capital).

(4) In this section "shares" includes stock.

(5) For the purposes of this section a person has control of company B if he has power to control company B's affairs by virtue of holding shares in, or possessing voting power in relation to, company B or any other body corporate.

(6) For the purposes of this section one person is connected with another if he would be so connected for the purposes of the Capital Gains Tax Act 1979.

(7) This section applies to instruments if rights are renounced under them on or after 1st August 1985, except where the arrangement concerned includes an offer for the rights and on or before 27th June 1985 the offer became unconditional as to acceptances.'.—[Mr. Ian Stewart.]

Brought up, and read the First time.

The Economic Secretary to the Treasury (Mr. Ian Stewart): I beg to move, That the clause be read a Second time.
This new clause brings to an end the device which goes under the name of the pref-trick, which can be used to avoid the payment of stamp duty on a company takeover or merger in circumstances where relief for papers and paper exchanges would not be available. The pref-trick takes advantage of an exemption from sales duty for renounceable letters of allotment and similar instruments.
The clause accordingly withdraws the exemption where these documents are used in connection with a takeover or the acquisition of a minority holding following a successful bid. It closes a loophole which had become evident. It follows from the arguments that I adduced in Committee in support of the purpose of clause 75, which was clause 74 in the earlier printing of the Bill, and I commend it to the House.

Mr. Terry Davis: The Economic Secretary begged as many questions as he answered in that brief introduction of the new clause. Why has it taken so long for the Government to take action to close this loophole? He spoke to the House as if it had recently emerged, but the loophole was known in the accountancy profession more than a year ago. An article in the magazine Taxation on 11 August 1984 drew public attention to the loophole. Members of the Opposition are surprised that it has taken nearly 12 months for the Government to take action. One wonders why this new clause is not included in the Bill. Surely the Government had enough notice. If they were not given this advice by civil servants, they could at least have been informed


through reading the press. It is amazing that it has taken so long for the Government to close what is admitted by them to be a loophole.
My second point concerns another loophole, another variant of the pref-trick. If it has taken the Government nearly a year to move as a result of this loophole being publically disclosed in August 1984, may we assume that it will take them the same time to move to close the loophole described in the magazine Accountancy Age last week when a Queen's Counsel pointed out that the pref-trick could continue?
Although this new clause closes one aspect of the loophole, it is still open to a purchasing company to avoid duty by subscribing to a few shares in the target company and for the people who control the target company to pass a resolution transferring the value to the purchasing company. In that way there would be a clear avoidance of stamp duty. Will the Economic Secretary say what action he proposes to take in 1985 to deal with a loophole which has been discovered in 1985?

Mr. Ian Stewart: The hon. Member for Birmingham, Hodge Hill (Mr. Terry Davis) asks why the new clause did not appear earlier and was not incorporated in the Bill. The Government and the Revenue were aware for a long time that there were schemes afoot which might be able to circumvent the proposals announced by my hon. Friend the Financial Secretary dealing with the pref-trick. Clause 75 is one of two legs which deal with this problem. It makes exemption legal for paper mergers or takeovers. The counterpart of that is to remove the exemption from sale duty for renounceable allotment letters.
I wish it had been possible to bring forward proposals at an earlier date, but because they are technical it took time to get them into the correct form. I should have liked to be able to announce this at the Committee stage when we were dealing with this subject, but it would have been wrong to have done so before the Government were ready with their solution which is now before the House.
The hon. Gentleman drew my attention to an article in Accountancy Age on 4 July. If he looks at that carefully, he will see that the author is not suggesting that the pref-trick can be used if the House accepts new clause 24. What is suggested is that there might be other ingenious methods devised to circumvent the stamp duty provisions. Clearly those are at this stage hypothetical, but the Revenue will remain fully alert to the possibility and I hope that if any valid or potentially successful means of circumventing the provisions as we are proposing them should emerge the Government will be able to take whatever action is necessary.

Mr. Terry Davis: That was a most unsatisfactory response from the Government and a very poor start to the Report stage. Are we being told that the Government have brought forward a one-legged Finance Bill? Why was it not possible to include this new clause when the Bill was published? Surely the Government had enough time between August and March to draft a clause for the Bill. Will the Economic Secretary tell the House why it was not possible to come to this conclusion before? Why were not the Government ready before July 1985?
How much money has been lost since August 1984? How much money has gone through this loophole during the past 11 months, and how much will be lost as a result

of the ingenious scheme described in Accountancy Age last week? Why will not the Government shut the door before the horse bolts?

Mr. Ian Stewart: The hon. Gentleman asks about the new scheme, but it does not yet exist. There have been suggestions in Accountancy Age that such devices might be invented, but unless and until they come forward the Government cannot respond to them.
The problem about new clause 24 is that it is always very much more difficult to close potential loopholes than to make basic provisions in the Bill. The substantial provision in clause 75 validates the availability of exemption from stamp duty that was planned last year. New clause 24 deals with an exploitation of a particular technique attached to the pref-trick system, and until that has been properly analysed and the way to deal with it has been settled it will not be possible to introduce a new clause, although it was announced last month and not today so that it is effective from 27 June.

Mr. Barry Sheerman: Will the hon. Gentleman answer the question put to him by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis)? Has he been able to make any assessment of the gain to the Revenue as a result of this course?

Mr. Stewart: I am not able to make an exact assessment. It is likely that some transactions that have taken place during the past few weeks would have taken advantage of the new scheme with which new clause 24 deals. I am not able to give a specific answer. If I am able to say more, I shall write to the hon. Member for Birmingham, Hodge Hill (Mr. Davis). He will appreciate that there is some difficulty in a case such as this, because if it is established that in one or two specific cases such a cost to the Revenue has been created it would be through the divulgence of the tax affairs of an individual taxpayer.

Mr. Terry Davis: As it is understood that the tax affairs of individuals are not disclosed to Ministers, how does the Economic Secretary propose to gather evidence about whether this ingenious scheme is being used?

Mr. Stewart: The Inland Revenue is always alert to the ways in which these schemes are being used or are potentially able to be used. I shall look to its advice.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 30

GROUP RELIEF: MODIFICATIONS

'(1) Section 258 and the following sections of Chapter 1 of Part XI of the Taxes Act (the enactments relating to group relief) shall have effect subject to Part I of Schedule [Group relief] to this Act.

(2) Section 263 of the Taxes Act (exclusion of double allowances etc.) shall be amended in accordance with Part II of Schedule [Group relief] to this Act and in that Part—

(a) paragraphs 9, 10 and 13 have effect in relation to any claim with respect to an accounting period of the surrendering company which begins on or after 1st August 1985; and
(b) paragraphs 11 and 12 have effect in relation to any claim with respect to an accounting period of the claimant company which begins on or after that date.

(3) In subsection (2) above "the surrendering company" and "the claimant company" have the meaning assigned by section 258 of the Taxes Act.'.—[Mr. Moore.]

Brought up, and read the First time.

The Financial Secretary to the Treasury (Mr. John Moore): I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to take Government amendments Nos. 56, 159 and 160.

Mr. Moore: Those hon. Members who were not on the Committee will, I hope, appreciate the detailed points that we have set out to help them in this unavoidably complex sector. The proposals given effect to by this new clause and schedule are relatively straightforward. Their main purpose is to allow companies that are at the same time both in groups and in consortia greater flexibility over the use of group and consortium relief for current losses. These are relaxations we have been urged to make in many representations and they will, I am sure, be widely welcomed. They should be particularly helpful to those industries, such as shipping and the emerging cable TV industry, where there are large-scale business ventures for which consortium arrangements are appropriate. These changes will also complement those we introduced last year in section 46 of the Finance Act 1984 which increased the maximum permitted number of member companies in a consortium and allowed some of the members to be non-United Kingdom companies or individuals.
These proposals are those that I announced during consideration of the Bill upstairs we intended to bring forward on Report. As I said then, we have for some time recognised that there is a good case in principle for these changes. The problem has always been that of finding workable solutions that do not entail adding further and excessive legislative and administrative complexity to what is already, technically, a very complex part of the tax code — I would not for a moment underestimate the added complexity encompassed within the new clause. For this reason, we decided initially that first priority in this year's Finance Bill had to be given to other matters. But in view of further representations on this matter since publication of the Bill, both from outside bodies and in consideration of the Bill upstairs, we believe it is right to act now without further delay.
As was argued so ably in Standing Committee by my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) and the hon. Member for Sedgefield (Mr. Blair), who took an active part in our deliberations at that time, consortium arrangement can be of considerable commercial importance. Indeed, there are many new projects in a wide range of vital industries which are of such a scale that they can be financed only by the use of consortia. However, the effect of the present rules is such that companies concerned may not always be able to make full use of relief for current tax losses in this kind of arrangement, and our proposals are designed to remove these anomalies whilst — and this was the point which the hon. Member for Sedgefield quite rightly raised in Committee — seeking to ensure that in total no more than the right amount of relief is given and to the right companies. That is equally important.
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In this new clause and schedule we are proposing two main relaxations to the group relief provisions. Both of these proposals concern cases where a company is at the same time in the same group as one or more other companies and is also either a company jointly owned by a consortium or one of the joint owners of a consortium company.
I will deal with the changes very briefly rather than go into the detail we went into in Committee. First, under the present rules, if such a company has a loss or certain other excess reliefs, that loss may be surrendered to members of its own group as group relief, or it may be surrendered between the jointly owned consortium company and the companies which own it as consortium relief. But it cannot be surrendered partly as one and partly as the other. That is to say mixed surrenders are not at present permitted. For the companies concerned, this has meant that loss relief has been given later by carry forward rather than sooner by surrender sideways, in the current period. The first relaxation we propose is to allow such mixed surrenders, subject to certain conditions.
Second, at present, if a member of a jointly owned consortium company cannot make use of its share of that company's loss perhaps because it too has losses in the corresponding period, then its share can only be carried forward or back by the jointly owned consortium company. It cannot flow through and be claimed by other companies in the consortium member's group. Similarly, losses cannot at present flow through in the reverse direction, where a company in the consortium member's group has losses and the jointly owned consortium company has profits. This has meant that groups have had to think very carefully about which group member should own the group's interest in the consortium. The choice has often had to be dictated by tax rather than commercial reasons, and if the projections of future profits and losses of companies in the group turned out to be wrong—and they often do — this relief has been lost. The second relaxation we are now proposing will make it possible for consortium relief to flow through in these circumstances, in both directions, again subject to certain conditions.
These, then, are two desirable relaxations. We did not have the privilege of the company on the Standing Committee this year of my hon. Friend the Member for Croydon, South (Sir W. Clark), but I know that he was associated for some years with amendments on this subject. I am sure that the relaxations will also be warmly welcomed by people outside. Generally speaking, their effect will be to enable the companies concerned to get relief for any losses earlier than would otherwise be possible. These changes are simple enough in concept. To achieve them, however, I fear that, as Members will see, some fairly complicated legislation is required. This is partly because we are here dealing with possibly quite complex configurations of companies. But it is also because we need — and I stressed this in Committee — some new rules and some tightening up of certain existing rules to ensure that only the right amount of relief is given, and to the right companies, where there are these now somewhat complex mixed and multiple claims.

Mr. Tony Blair: Identifying the problem which the new clause addresses was relatively easy, but, as we thought, a solution has proved extremely difficult. These are complex legislative provisions and I should like to put one or two questions to the Financial Secretary about them, in order to make sure that at the same time as we are dealing with an anomaly we are not opening up undue possibilities of avoidance.
The two problems with which the new clause deals are mixed claims. The first is where the consortium company makes a loss and is prevented from surrendering it to its subsidiary company or to a member company. It can


surrender it to one or the other, but not to both. The second problem relates to flows, where a member company in the consortium has no profits against which the consortium company can set off losses, but members of the same group as that consortium member company have losses. This clause would enable flows across group members. The effect of new clause 30 is essentially to allow a consortium company to be treated as a full group member so that losses can be spread.
In general, we consent to the proposition advanced by the clause, but I should like some assurances on the record about avoidance or abuse. When we discussed this matter in Committee, the Financial Secretary rightly said that only a proportionate share of the losses of the consortium company should be allowed to be spread over the member companies or companies within the group of the consortium company. I should like an assurance that that is what these complicated legislative provisions do. If the amount of legislative print is any guide to the strength of the anti-avoidance provisions, they should be very strong indeed. However, as we know only too well, if even a small chink of avoidance appears the purpose of the clause can be subverted. I therefore ask for an assurance on the spreading of the proportionate share of the overall losses.
Am I right in thinking that the group or consortium relationship must exist throughout the entirety of the relative accounting period? That is important for avoidance purposes.
Finally, I asked upstairs what the cost, if any, of the introduction of this type of clause would be, and I was told that it was unlikely to be significant. On more detailed consideration, is there any flesh that the Financial Secretary can put on the bones of that remark and tell us exactly what we are debating? Such a clause is necessary because of the anomaly which had to be dealt with. We would like assurances that we are not initiating further anomalies at the same time as abolishing this one.

Sir William Clark: This new clause shows that the Treasury is one Department where we have to persist for probably double the time we have to persist with any other Department. I welcome the change of emphasis on the part of the Treasury.
Over the years the lack of this consortium relief has inhibited the expansion of some businesses. I am delighted that this is going to be remedied. No matter what this clause does—I am as much against avoidance as anyone else in the House—it will mean that a loss can only be used once. If a loss is incurred in a consortium and it is used, then, provided it is not used again, there cannot be any avoidance at all.
I take the point that it must be in the same accounting period, but any loss in a consortium should be used to the best advantage. In many cases, losses are made in building up expansion of the business, and it is doubly expensive if that loss cannot be set off against other profits.
I welcome the new clause and congratulate my hon. Friend on introducing it.

Mr. Moore: I thank my hon. Friend the Member for Croydon, South (Sir W. Clark). As I said earlier, he has been a persistent advocate in this area and it is nice to see his advocacy rewarded. I cannot, of course, assume, as he does, that it takes longer to persuade the Treasury to come to a rational set of conclusions.
I should like to give an unreserved assurance to the hon. Member for Sedgefield (Mr. Blair). In Committee, he

asked us to look carefully at the possibilities of avoidance. The Government were doing this when I commented on the other new clauses at which we were looking. In so far as the sharing of losses is given, I unreservedly say yes and yes again to the timing of the clause relating to companies years.
The hon. Gentleman will note the particular care that was taken to ensure that "entry in, entry out" was not an avoidance possibility. Devising the proper legislative solution caused great difficulty.
The hon. Member for Sedgefield also asked about cost. I had better not say more than I said in Committee. One feature of the clause is to tighten as well as to relieve. As my hon. Friend the Member for Croydon, South said, this is an area of potentially greater use, with larger projects, so there could be more opportunities for business, but the amount of revenue theoretically at risk is insignificant.
The hon. Member for Sedge field will remember that we are talking only about the cash flow impact—a timing impact — because the inability to take reliefs in the mixed surrender and flow-through manner merely delays the ability of a company to take relief and does not deny it. I hope that the hon. Gentleman will be satisfied with those assurances.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 32

EXEMPTION FOR GILT-EDGED SECURITIES AND QUALIFYING CORPORATE BONDS

'(1) In section 67 of the Capital Gains Tax Act 1979 (gains on disposals of gilt-edged securities and corporate bonds held for 12 months not to be chargeable gains)—

(a) in subsection (1) the words from "except" to the end of the subsection shall not apply if the disposal occurs on or after 2nd July 1986; and
(b) subsections (2) and (3) shall not apply in relation to disposals on or after that date.

(2) With respect to disposals occurring on or after 2nd July 1986—

(a) in section 270 of the Taxes Act (charge to tax on certain disposals of United Kingdom securities) at the end of subsection (6) there shall be added the words "or qualifying corporate bonds, within the meaning of section 64 of the Finance Act 1984";
(b) in section 84 of the Capital Gains Tax Act 1979 (compensation stock), in subsection (4) for paragraphs (a) and (b) there shall be substituted the following paragraphs—

"(a) shall, so far as possible, be identified with securities which were issued to him as mentioned in subsection (1) above rather than with other securities of that kind, and
(b) subject to paragraph (a) above, shall be identified with securities issued at an earlier time rather than with those issued at a later time"; and

(c) in Part II of Schedule 13 to the Finance Act 1984 (re-organisations etc. involving qualifying corporate bonds) in paragraph 10(1)(c) for the words from "if" to "that section" there shall be substituted "on that subsequent disposal section 67 of the principal Act".'.—[Mr. Peter Rees.]

Brought up, and read the First time.

The Chief Secretary to the Treasury (Mr. Peter Rees): I beg to move, That the clause be read a Second time.

Mr. Speaker: With this, we may take Government amendments Nos. 43 and 44, 79 to 82 and 112 to 122.

Mr. Rees: The new clause amends section 67 of the Capital Gains Tax Act 1979. The amendments are consequential.
The purpose of this complex of provisions is to take gilt-edged securities and corporate bonds, which are defined in the 1979 Act, out of charge to capital gains tax. That will have the desirable consequence of simplifying the scope of the tax, but the main reason underlying the new clause is that there has been a certain asymmetry, because gilt-edged securities and corporate bonds have not been within the charge to capital gains tax if they have been held for more than 12 months, and it has been found increasingly that those who wish to take a loss on such securities have disposed of them within 12 months and those who wish to take a profit have disposed of them outside 12 months. If follows, therefore, that the Inland Revenue has been conceding losses for tax purposes, but has not been recovering capital gains tax on disposals.
The problem will be accentuated by bond washing and by the indexation provisions. The simplest, cleanest and best solution was thought to be to take gilt-edged securities and corporate bonds out of charge to tax after 2 July 1986 in respect of disposals. The postponement is necessary so that we do not alter the rights or expectations of those who have bought securities up to now.

Mr. Tim Smith: It has been suggested in the financial press that the Treasury has done the impossible and abolished a tax while increasing the yield to the Inland Revenue. Can my right hon. and learned Friend confirm that an increase in yield will result from the abolition of the tax?

Mr. Rees: I wish that I could give precise figures. It is likely that there will be an increase in the number of transactions of various kinds and it is just possible that may increase the yield of capital gains tax. Certainly, there should not be a loss, because taxpayers have been more disposed to take their losses within 12 months and their gains outside 12 months. Therefore, the Inland Revenue has been conceding relief and not taking tax on disposals. My hon. Friend's analysis is correct, but I find it difficult to put a precise figure on the likely outcome.

Dr. Oonagh McDonald: We are glad to welcome the new clause. I am sure that the Chief Secretary will cast his mind back to the Committee of the whole House when I referred to the abuse of creating artificial losses by transactions in high-coupon gilts. I mentioned "Gremlin Corner" in Taxation of 4 May which described this method.
The article stated:
Another tax planning point is that it will be possible to create … an artificial allowable loss by purchasing a high-coupon gilt and selling it within the year (but after 27 February 1986).
The Chief Secretary said that he would think about what I had said. I am glad that his thoughts have borne fruit, though they seem to have been some time in coming to fruition. It appeared from the Inland Revenue press release of 29 May that the Government were still thinking about the matter and it was not until 2 July that the changes were announced. I am not sure why that thought process took so long; perhaps the Chief Secretary will tell us.
The hon. Member for Beaconsfield mentioned the comments of the financial press. The Financial Times said:

The consequence, the Treasury estimates, will be a significant increase in the long-term yield from capital gains tax.
In view of what the Chief Secretary said earlier, I am not sure why the Financial Times refers to Treasury estimates. However, I hope that there will be a
significant increase in the long-term yield from capital gains tax".
As the Chief Secretary knows, I am constantly anxious about the small amount of revenue that seems to be collected from capital gains tax. The yield has declined from 1 per cent. of total revenue in 1976–77 to an estimated 0·8 per cent. in the current year. I am glad that the Chief Secretary has stopped another form of abuse and we hope that the yield will be increased, though the right hon. and learned Gentleman seems unsure about the amount by which it will be increased.
The Financial Times said:
The main victims of the abolition of the tax on gilts will be the insurance companies. They are the largest group of gilt investors, owning nearly 30 per cent. of outstanding stock. For every one of the last 16 years they have been able to cut their total capital gains tax … bill by generating capital losses on their holdings of gilts.
If they are to be the main victims, the potential long-term gains should be quite high.
On the assumption that the Chief Secretary will collect more revenue, what does he propose to do with it? We shall have several suggestions to make during debates on other new clauses, particularly the one on work place nurseries. When the Chief Secretary has decided how much he will get, perhaps he will smile more kindly on our new clauses. The Opposition has many good causes, unlike the Government. I hope that the Chief Secretary will take this opportunity to provide the money that poor people desperately need.

Mr. Peter Rees: I shall respond briefly to explain why there was a delay. I will plead guilty to an even longer delay, because although we were enthralled by the possibilities of tax avoidance which the researches of the hon. Member for Thurrock (Dr. McDonald) had unearthed and which were disclosed in Committee, I had foreshadowed in my speech on Second Reading on 8 May the possibility of action. The hon. Lady will appreciate that these matters are of some complexity. We felt that it was right to try to devise the right solution, and we hit on this solution only after considering the possibilities. I hope that it commends itself to the House.
As to what we would do with increased revenue, I must tell the hon. Lady that we continue to adhere to the principle of Gladstonian finance. I say that to bring the alliance, or the sole Liberal Member present, alongside us on this matter. We pay the revenue into a central fund, and do not believe in the hypothecation of tax, although we could, if it were in order, have an interesting debate about whether we should.
Although many good causes will be advanced—I am sure that on reflection the hon. Lady would not claim a monopoly of good causes for the Opposition — I must respectfully decline to say to what particular good cause any or part of the general funds, which might be thought to represent this, may be devoted. We shall bear in mind any useful suggestions from either side of the House.

Mr. Tim Eggar: Will my right hon. and learned Friend comment on the corporate planning point and the abolition of CGT for that? Will he confirm


that this is a further measure which the Government are taking to reactivate the market, and that the Government remain committed to the reactivation of that market?

Mr. Rees: I hope that that will be a further attractive consequence of the measure. It was not the Government's principal motive, but my hon. Friend, with his usual sharpness of perception, was right to draw attention to it. We hope that the market for this kind of bond will loosen up. It is noteworthy that the markets and financial commentators generally have viewed the clause with a certain amount of approbation.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 1

WORKPLACE NURSERIES

(1) In section 62 of the Finance Act 1976 (exceptions from general charges on benefits) after subsection (8) there shall be inserted the following subsections:

"(9) Section 61 above does not apply to a benefit consisting in the provision by the employee's employer of day-care facilities in a registered nursery for a child or children of the employee where such facilities are provided for the children of staff generally.
(10) The provisions of subsection (9) above shall be deemed always to have had effect."

(2) In section 72 of the Finance Act 1976 (interpretation of the Chapter charging benefits) after subsection (12) there shall be inserted the following subsections:

"(13) For the purposes of this Chapter "a registered nursery" means a nursery registered with a local authority in accordance with the provisions of the Nurseries Act 1948 as amended.
(14) For the purposes of section 62 nursery facilities shall not be regarded as not provided for the children of staff generally when the employer is not able to offer a place in a registered nursery to the children of staff generally solely because of the limited availability of such registered nursery places at or near to the employer's work place or near to the employee's home.
(15) For the purposes of subsection 62(9) above "child" means such person in respect of whom the employee is entitled to relief under the provisions of section 14 to the Income and Corporation Taxes Act 1970 or would be so entitled but for the employee's being married."

and the present subsection (13) of section 72 shall accordingly become subsection (16).'.—[Mr. Terry Davis.]

Brought up, and read the First time.

Mr. Terry Davis: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Harold Walker): With this it will be convenient to take new clause 4 — Exemptions from general charges on benefits (registered nursery)—
'1. In section 62 of the Finance Act 1976 (exemptions from general charges on benefits) after subsection (8) there shall be inserted the following subsections:

"(9) Section 61 above does not apply to a benefit connected with the provision by the employee's employer of day-care facilities consisting in a registered nursery for a child or children of the employer where such facilities are provided for the children of all staff generally.
(10) 'Provision' in subsection (9) above shall not be confined to the provision of facilities on the employer's premises but shall include payments made by the employer in respect of the provision of day care facilities made available by any other person.
(11) Payments made by any employer in relation to the provision of day care facilities in subsections (9) and (10) above, whether meeting a liability of the employer or of

an employee to whom those facilities are made available, shall not be assessable on the employee under schedule E."

2. In section 72 of the Finance Act 1976 (interpretation of the Chapter charging benefits) after subsection (12) there shall be inserted the following subsections:

"(13) For the purposes of this Chapter 'a registered nursery' means a nursery registered with a local authority in accordance with the provisions of the Nurseries Act 1948 as amended.
(14) For the purposes of subsection 62(9) above 'child' means such person in respect of whom the employee is entitled to relief under the provisions of section 14 to the Incomes and Corporation Taxes Act 1970 or would be so entitled but for the employee's being married, and who is below the statutory school entry age."

The present subsection (13) of section 72 shall accordingly become subsection (15).'.

Mr. Davis: The purpose of the new clause is to overrule the decision of the Inland Revenue and the Government to make people pay income tax on the contributions which are made by their employers towards the cost of providing workplace nurseries. As the name suggests, a workplace nursery is usually provided at the place of work—an office, factory or hospital—for the children of the people who work at that location.
Usually, the cost of the nursery is shared between the employee, or parent, and the employer. I emphasise that the parent pays. Almost always the parent makes a substantial contribution towards the cost of providing the workplace nursery, and pays from his or her income after tax.
I emphasise that many employers see the provision of nurseries as being in their interests, especially when their employees possess scarce skills. It is often in an employer's interests to encourage women to return to work after childbirth as quickly as possible. Some employers also recognise that it is in the interests of the community and society to provide genuinely equal opportunities for women, and that unless nursery places are provided for women with children, women cannot enjoy equal opportunities with men.
Trade unions and employers often recognise that it is in the interests of society to provide nurseries so that single parents can take up opportunities for employment. I am thinking of the widowed, the divorced and the separated. Single parents are usually women, but sometimes men, who have been widowed, divorced or left with the custody of children. Generally speaking, women are left with the responsibility of bringing up children after a marriage has ended through death or some other event.
It is therefore recognised that it is in the interests of those single parents to be able to take employment, and to do that they need the facility of a nursery. During the past 30 years, progressive employers, who recognise their social obligations, have increasingly provided workplace nurseries.

Mr. Eggar: I follow the hon. Gentleman's analysis, but if he uses those premises, why does his amendment not go further and, for example, cover the position where an employer may choose to provide not a workplace nursery, but a child minder to look after a child?

Mr. Davis: The clause does not cover that because we are dealing with a change in the practice of the Inland Revenue which concerns workplace nurseries. Money paid by an employer to an employee to employ a child minder


has never been relieved of income tax, but for decades employers' contributions to workplace nurseries have been tax-exempt.

Mr. Tim Smith: They have not.

Mr. Davis: As is often the case, the hon. Member for Beaconsfield (Mr. Smith) chooses to intervene from a sedentary position. I hope that he will seek to catch your eye, Mr. Deputy Speaker, so that we can analyse his speech. It will be the first time that he has spoken in such a debate.
The Government should encourage the provision of workplace nurseries, which are especially important for single parents. It must be in the Government's interest to encourage single parents to support themselves and their families instead of forcing them to depend on social security. It is also in the community's interests for single parents to be given the opportunity to serve it. That is nowhere more true than in the National Health Service.
I would have expected the Government to support me, but 18 months ago a decision was taken to charge income tax on the contributions of an employer to the cost of providing a workplace nursery. I emphasise that the tax applies only to someone who is paid or receives a total of £8,500 a year, but in calculating that income the Inland Revenue takes into account the employer's contribution to the cost of providing a workplace nursery. Therefore, a person is taxed both on his wages and on the employer's contribution to the nursery.
It is common for a well-run nursery to cost £4,000 a year per child. [Interruption.] I realise that I am telling the hon. Member for Beaconsfield things that he does not know, but the Financial Secretary will endorse my figures.

Mr. Tim Smith: Will the hon. Gentleman confirm that he is advancing the cause of an elite minority? The number of taxpayers affected by the new clause is about 2,000.

Mr. Davis: We shall see whether the people involved are called an elite minority by my hon. Friends and, indeed, Conservative Members because I shall put that point to the hon. Gentleman later. If an employee pays £30 a week towards the cost of a nursery and the employer pays £50 a week, the Inland Revenue adds £2,600 to the employee's wages in calculating the liability to income tax on the employer's contribution to the nursery. If somebody is paid £120 a week, or £6,000 a year — a fairly low salary for a typist in central London — that person becomes liable to income tax on the employer's contribution towards the cost of providing a place for a child at a nursery.
It was the Government's view, and I believe it still is the Treasury's, that liability to tax has existed since 1948. I regard that as a half-truth. Perhaps the liability existed in theory, but it did not exist in practice. There is plenty of evidence to support my contention. It is well documented that the Equal Opportunities Commission was advised by the Inland Revenue in 1979 that there was no liability to income tax on an employer's contribution towards the cost of providing a workplace nursery. The Consumers Association was advised several times that there was no liability to tax. It was so advised from 1976 to 1982 and included that advice in the Which? magazine tax guide.
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I do not blame the Inland Revenue for giving such advice. Workplace canteens were exempt from liability to tax in 1948, as were car parks, social clubs and sports facilities. It can be argued that the benefit of such facilities is small, but that is not always so. It can be extremely expensive to provide a car park, expecially in central London. It can also be expensive to provide sporting facilities if they are used by a minority of employees.
It should be clear that the Opposition are not suggesting the imposition of tax on car parks, social clubs, sports facilities or even the office or factory canteen. However, we believe that workplace nurseries should be put on exactly the same basis. For several years, the Inland Revenue advised that workplace nurseries were in the same category as canteens and other benefits for which concessions are given on an extra-statutory basis. In a letter of July 1984, the Financial Secretary admitted to me that the advice was given by "mistake".
The Inland Revenue decided to levy tax when, in 1983, it received a specific inquiry about tax liability on workplace nurseries from an employer. I refer, of course, to the Kingsway children's centre. We went into detail about that centre in Committee and on Report one year ago. I shall not repeat the facts, but there is a mistaken belief that workplace nurseries are an issue only for people who live in London and that they are provided for employees of organisations such as London Weekend Television and trade unions such as the Nationl Association of Local Government Officers.
There is also a mistaken belief that workplace nurseries are provided only for single parents. Nurseries are provided throughout the country for people in many different types of employment who are as likely to be part of a two-parent family as a one-parent family.
I have discovered that such nurseries are often provided in the National Health Service. There is a workplace nursery at the All Saints hospital in Birmingham. I am not telling the Inland Revenue anything that it does not know — it is not my task to set it on the parents who are enjoying the benefit of a workplace nursery. There are 56 children at that nursery and there is a waiting list of 40. Parents who are able to send their children there pay £5 a day, or £1,250 a year.
Nobody knows how much the hospital contributes. It has never previously been thought necessary to spend time calculating the cost of the nursery. Everybody involved in running the NHS in the west midlands accepts that the nursery benefits the NHS and people working in it. Most of the parents who send their children to the nursery work at All Saints, at Dudley road hospital, or as community health visitors. A health visitor is paid about £6,000 a year. If the hospital can calculate its contribution, it is likely that those parents will be charged income tax.
Most of the parents are nurses, who are paid even less than health visitors. Some are student nurses or student doctors. Most parents are not one-parent families, and often have returned to the hospital to take a further course of training. The Government now insist that the hospital calculates the cost of running the nursery so that they can tax each parent on the benefit. If parents cannot afford to pay, the Government will drive them to use unqualified child minders.
The All Saints day nursery might be unique in Birmingham, but it is not unique in the west midlands. Parents pay similar sums of money for a nursery at


Sandwell district hospital, and nobody knows the cost to the hospital. It benefits about 35 children. Such provision means that the children of doctors, nurses, health visitors, cleaners, domestics and a carpenter mingle. They stay open from 7 am until 6 pm, thus enabling the parents to work the unsocial hours often associated with hospitals.
At worst, the Government's decision to tax employers' contributions to workplace nurseries will drive single parents back on to social security. At best, it will create work for the NHS simply to tax nurses and others who work for it. Such people serve the community. In the person of the Secretary of State for Social Services, the Government have made life difficult enough for those people recently. The Financial Secretary is now adding to their difficulties by insisting on taking his cut from their wages.

Mr. Tony Baldry: The purpose of my new clause 4 is identical to that of new clause 1.
I wholeheartedly support the Government's desire to tackle tax perks. Pay perks are divisive and distortive. We must tackle wage inflation if we are to compete effectively with our overseas rivals, but it is pointless exhorting hourly paid employees to accept wage constraint if they can see middle managers and others enjoying pay perks.
The question, however, is whether employer help towards the provision of nursery places is a perk. I submit to the House that it is not and accordingly should not be taxed as if it were. Employer help towards the provision of nursery places is a means of enabling many to participate in the labour market who would otherwise he denied that opportunity.
Let me illustrate. If I am a middle manager, my employment is not dependent upon my having a car. I would doubtless in most instances get to work by train or by bus. The provision of a car is in part a perk. It is part of my remuneration package and thus should clearly be taxable. However, a single mother with a child or children below school age is in a different position. The mother's ability to participate in the world of work will be dependent on her finding someone to care for her child or children while she is at work. The provision of a nursery place is not part of her remuneration; rather it is a means whereby she can participate in work. Without it, she would not be able to work whereas without the company car the middle manager would still be able to work.

Mr. Neil Hamilton: I am a little perplexed at the distinction that my hon. Friend seeks to draw between those who are making use of workplace nurseries and those who choose to live in a place where public transport is non-existent and who have no transport of their own. In those circumstances, of their own volition they have placed themselves in a position where it is more difficult or impossible to put themselves in the labour market. I cannot see why my hon. Friend seeks to draw a distinction as to the taxable nature of the benefit in kind where it is provided by an employer on the basis that he describes.

Mr. Baldry: That was not, with respect, the distinction I was seeking to make. A middle manager with a company car would be able to work whether or not he possessed that car. There are many single mothers who, if they did not have access to nursery provision, would not be able to work. Therein, in my submission, lies the difference between a perk which should be taxed and a facility to

employment such as the employer helping to provide nursery places — which, in my view, should not be taxed.
Put another way, creches should not be taxed because they are not benefits in the sense of conferring any actual advantage on the employee; rather they are facilities which remove an impediment to the employment prospects of some groups in the community.
My right hon. Friend the Prime Minister recently told the House:
This country has the second highest proportion of women in the labour force in the European Community. The long-term trend is towards an increase in the number of women at work."—[Official Report, 27 June 1985; Vol. 81, c. 1076.]
I know that my hon. Friends on the Treasury Benches wish to see the maximum possible flexibility in the labour market and to remove any conceivable barriers to the supply of labour. Much of the flexibility at present in the labour market is brought about by the participation of women, and an increasing number of women working part time. How then is it sensible to erect a barrier to such flexibility by a fiscal device involving, in budgetary terms, such a small return to the Treasury?
Further, as a member of the Select Committee on Employment and a secretary of the Conservative Back Bench Employment Committee, I am constantly exhorting employers to invest more in the training of their staff. However, in an era of new technology, it is often necessary for employers to invest sizeable sums of money in the training of personnel to operate expensive equipment. Employers are likely to be less than enthusiastic about adequate investment for training if women staff are unable to work because of children, and the employer's investment in that training is thus lost.
Let me give another example. As a community we spend a sizeable sum of money each year training nurses — a three-year training period — but how many trained nurses do we lose each year because, although they would like to continue at work even part-time, they are unable to do so for want of someone to look after their children? What is the cost to the National Health Service of the loss of such trained people? The point has been well made in a recent study of the Blackshaw day nursery at St. George's Hospital — a workplace nursery meeting the needs not of any élite group but of women shift workers in the National Health Service and enabling them to remain in work and, more importantly, the National Health Service to retain skilled employees. In my submission, it seems to make no sense to deny single mothers the opportunity of employment, so that they then become a liability on the state and in receipt of supplementary benefit, and thereby further frustrate flexibility in the labour market.
The amendment is a simple and, I hope, thoughtful and common-sense proposal to exempt workplace nurseries from tax where all employees can participate in the workplace nurseries. I emphasise to my hon. Friends particularly that the amendment has the support of many, including the Association of County Councils when it was under Conservative control, the Association of Metropolitan Counties and many of those particularly concerned with specialist interest employment matters. It has the support of those concerned to ensure the maximum training and the maximum flexibility within the labour


market. That includes the Institute of Personnel Management and the Industrial Society. I hope that it is an amendment which will attract the support of the House.

Ms. Harriet Harman: I support new clause 1. The question we should be asking ourselves is whether the Government should use the tax system to hinder the development or the existence of workplace nurseries. The answer, of course, is that they should not.
The facts are these. Most parents work or at least are looking for work. Most mothers work; many mothers with children under five also work. They work because they have to make ends meet and because they want to work. They have every right to work and we need their work. The economy and all the services in this country would collapse if women withdrew from the labour market tomorrow. We also know that the first five years of a child's life are vital for its mental, physical and social development. We know that they thrive on learning from and playing and mixing with other children, especially if they have plenty of space, trained staff and good equipment. It gives the child a head start in life to go to that sort of nursery. That is why parents who care about their children and who are responsible want the choice of decent nursery provision.
A Government survey showed that over 90 per cent. of parents — we are not speaking about a small rump of parents—wants some sort of nursery provision for three, four and five-year-olds. It also showed that nearly 50 per cent. want places for children under three. Instead, the situation is that the child of the working parent has to make do with a patchwork of arrangements. They may be looked after by a child minder who is usually not properly supported or supervised by the local authority, or by relatives or friends, but that is becoming increasingly difficult with the breakdown of old communities. The working mother tears her hair out; it is almost invariably the working mother who tears her hair out. Because of the deep division of labour that exists in the home, mothers still have the primary responsibility for looking after children. I hazard a guess that if child care were shared equally between men and women, the new clause would be accepted with no problem.
Despite the overwhelming demand for decent nursery provision, there is virtually none. Britain's children are Europe's poor relations when it comes to nursery provision. Many Tory-controlled local authorities offer no nursery classes or schools. Gloucester does not provide one nursery class or school for children under the age of five. That is not because there are no children under the age of five in Gloucester, but because the local authority will not meet their needs. There is only one social services day nursery place in Gloucester for every 1,000 children under the age of five.

Mr. Eggar: rose—

Ms. Harman: I shall give way when I have finished dealing with Bromley. Bromley has 188 nursery places. It is currently applying to the Secretary of State to close them all. It will join Gloucestershire at the bottom of the league. That is the background against which we must consider the new clause.

Mr. Eggar: No one denies that there is a need for people to look after the children of working mothers and fathers, but I have reservations about the fact that we are going out of our way to single out a group of people who are fortunate enough to have a nursery place at their place of work. I am also rather confused by the way in which the Opposition's amendment is drafted. The hon. Lady and I have children of about the same age. If we had a nursery in the House of Commons and wanted to bring our children in after the period of day care had ended, we should not benefit from such a concession because we have to be here in the evenings. Why have the Opposition drafted the clause so specifically?

Ms. Harman: The point to which I am addressing myself—the hon. Gentleman should recognise that it is of paramount importance — is whether the Government should use the tax system to hinder the existence and development of workplace nurseries. That is what the new clause aims to prevent.
We must increase parents' opportunity to choose decent nursery provision for their children under five. We must judge the aim to exempt employers' contributions from tax against that background. We should have a workplace nursery here to help all the women who work as secretaries, cleaners and canteen staff and keep this place going. There are plenty of rooms available.

Mr. Eggar: What about men?

Ms. Harman: I have already explained that unfortunately there is a deep division of labour within the home and that therefore the responsibility for rearing children almost entirely falls upon women. It would be good news if hon. Members would join me in a campaign to end male absenteeism in the home. I shall have to ask the hon. Gentleman's wife when I next see her whether he plays his full part. I bet that he does not.
The House should follow the GLC's example. It provides an excellent workplace nursery. The new clause would encourage those who are trying to increase a provision which meets the needs of children, which is good for them, and which meets the requirements of working parents. I hope that the House will support the new clause.

Sir William Clark: This is an interesting debate in which to take part. I hope that my hon. Friend the Member for Enfield, North (Mr. Eggar) was not serious when he suggested that we should have a nursery here.

Mr. Eggar: I did not make the suggestion.

Sir William Clark: Nevertheless, the suggestion was made. Many members of the public think that we already have a nursery — and a badly behaved one on some occasions.
I hope that my hon. Friend the Financial Secretary will resist the new clause. There are so-called perks — a company car or a payment to BUPA. Nearly every member of the Electrical, Electronic, Telecommunication and Plumbing Union has a BUPA subscription paid by his or her employer on which tax is paid. It is no good the hon. Member for Workington (Mr. Campbell-Savours) nodding his head. Of course they pay tax.

Mr. Campbell-Savours: I was not nodding; I was shaking my head.

Sir William Clark: The hon. Gentleman is wrong.

Mr. Stuart Randall: Will the hon. Gentleman tell the House what percentage of the EETPU membership has signed up for BUPA? That policy is not being pursued by the union, of which I have been a member since 1953.

Sir William Clark: I am sure that the House is grateful for that information. In many cases BUPA contributions are paid by employers. In one of the wage negotiations with the EETPU, part of the deal was that BUPA contributions should be paid on behalf of employees.
For many years it has been the policy of successive Governments to tax any perk, in whatever guise it comes. We should be considering the exemption limit. That has nothing to do with nurseries; it covers the whole range of perks. I accept what the hon. Member for Birmingham, Hodge Hill (Mr. Davis) said about the amount having to be added to the salary. There is nothing unusual in that. If it is decided that a perk is part of one's salary, its value must be added to the cash that one receives. That may bring one over the £8,500 limit. That limit is out of date. It has not been changed since 1979. In 1979, the average industrial wage was just over £100 a week. Today it is nearly £200. If it was right to set the limit at £8,500 in 1979, it should now be uprated.
Taxation is supposed to be fair for every taxpayer. It is wrong to single out nurseries. The crucial point is that if a nursery is subsidised, it is a perk. Many nurseries are not subsidised. My information is that there are 75 to 80 subsidised nurseries. I believe that my hon. Friend the Member for Beaconsfield (Mr. Smith) said that they covered about 2,000 children. That is a minority. Of course we want women with children to be able to work. If one singles out those people who are fortunate enough to work for someone who provides a nursery, what shall we do for the mother who does not have that facility?

Mr. Austin Mitchell: Increase child benefit.

Sir William Clark: The fact that the Labour party is expert at spending other people's money emerges in every debate. When it comes to spending its own money, it is a little more reasonable.
If we say that a workplace nursery is to be tax-free, what about the mother who does not have a nursery at work? What shall we do for her? What if the Inland Revenue were to say that there would be a child-minding allowance for those who keep their children near home when they are at work? What would that cost the Exchequer? I have tried to find out. It would increase public expenditure by over £2 billion if we were to make nursery places available for all children.
I understand that many of these nurseries are super and cost a great deal of money. In many cases the subsidy is about £2,000 or £2,500 per child. The subject of perks raises a different argument, but if we tax employees' perks, no perk should be excluded. I hope that my hon. Friend will resist the new clause. The fact that the cost is shared is immaterial. If an employer supplies to an employee something worth £80 and that employee pays £40 of the cost, he is enjoying a £40 perk.

Mr. Robert Sheldon: It is pleasing to hear the hon. Member for Croydon, South (Sir W. Clark) supporting benefits in kind. I wish that he had supported them in 1976 when the Labour Government

introduced legislation and he voted against many of the provisions. Is there a difference between the benefits in kind which were taxed then and this particular benefit? People may be taxed on the cost of travelling to work on the basis that they can or should move their abode closer to their place of work, but it is almost impossible for a person with a child to avoid incurring certain expenditure in relation to child care.

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Sir William Clark: Every working mother suffers that disadvantage, because if she goes to work she must find someone to look after her child. She may find a minder locally or a relative may help out or, if she is very fortunate, she can take the child to the works nursery. I assure the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) that I am not advocating perks. If perks are taxed, every perk should be taxed. There should be no exemptions.
One of the reasons why the perks industry has grown so alarmingly since the end of the war stems from the high rates of taxation that we have suffered under successive Governments. My right hon. Friend the Chancellor of the Exchequer intends to reduce taxation. If taxes were reduced to a reasonable rate — for instance, a starting rate of approximately 15p in the pound rising to no more than 40p to 45p in the pound — we could remove all perks, because people would have enough money to provide their own amenities. It is a retrograde step to single out nurseries, which are an emotive issue, and set one taxpayer against another—the working mother with a nursery against the working mother without a nursery. I hope that my right hon. and hon. Friends will resist that step.

Mr. Guy Barnett: This is an important debate and I am grateful to my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) for the way in which he opened it. I should like to criticise the use of the word "perk" by the hon. Member for Croydon, South (Sir W. Clark). It is wrong to regard the provision of workplace nurseries and its possible taxation as a benefit to those who take advantage of it as being on all fours with other forms of perk of which I am extremely critical. The argument for this tax relief—it is not a perk—is a social argument. Has the Treasury consulted the DHSS to ascertain that Department's view on the need to encourage workplace nurseries wherever possible?
My hon. Friend the Member for Peckham (Ms. Harman) said that at present this tax hinders the development of a socially desirable asset. From experience in my constituency I have felt very strongly about this for some time. With my hon. Friend the Member for Barking (Ms. Richardson) and my right hon. Friend the Member for Lewisham, Deptford (Mr. Silkin) I went to see the Under-Secretary of State for Employment. I was trying to persuade the Manpower Services Commission to provide a nursery at the local skillcentre in Deptford, but I had no success. Fortunately, however, we were able to get the assistance of the local councils in that endeavour.
I appreciate the importance of providing workplace nurseries because I have seen the conditions in which so many women live in my constituency and elsewhere. They are very often cooped up in high-rise flats, hardly able to get out and enjoying, if I may so describe it, lonely conditions which are hardly conducive to bringing up


young children. I want such women to be able to earn their own living and to provide for themselves. The hon. Member for Croydon, South said that the Labour party wanted to spend other people's money, but the Government are spending our money providing supplementary benefit and other benefits for women who are prevented from working by the lack of workplace nursery provision. I want such women to have the opportunity to train at skillcentres to make themselves more employable and perhaps to find employment, but their prospects are not bright if the potential employer does not provide a workplace nursery.
One of the arguments in favour of the new clause is the desperate shortage of day nurseries. In many parts of the country they do not exist at all or are in short supply. There is an excellent day nursery in my constituency, the Vanbrugh day nursery. It is an excellent institution but there is a waiting list and it cannot meet the need. I am not sure of the figures for my own constituency, but in many London boroughs more than 30 per cent. of families are single-parent families. If we do not make proper provision for the under-fives there will be a major social problem.
The day nursery in my constituency is inadequate, nursery schools do not meet the needs of parents because of the hours when those schools take children and many people feel disturbed at the possibility of children being with unqualified child minders. The question is whether we want to encourage the development of workplace nurseries and to continue to make proper provision for those already using them.
There is a strong argument for workplace nurseries, whatever outside provision there may be, because it is important for children under the age of five to see as much of their mothers as possible. The mother should be within reach so that people in charge of the nursery can get the mother to comfort her child if it is upset. It is easier for the mother to take her child to work than to take it to a nursery first and then go to work. Workplace nurseries would also assist in family development. The cost of not providing workplace nurseries is incredible when one considers the waste of the skills, training and qualifications of women who are prevented from working because they have young families when they might otherwise be working in a private company or a public institution such as a hospital.
Just before the debate I received a letter from a constituent. I shall conclude by reading from that letter because I think my constituent's case is probably typical of the cases of many hundreds of people in my constituency and throughout London. Referring to her little boy, she said:
I could not face leaving him with a childminder who I cannot help believing is an alternative mother and it would sap my confidence as a mother. It was hard to leave him at the nursery when he was eight months old; now 14 months later I could not take him from his friends and leave him with one strange woman. I would therefore have to give up work as a principal local government officer in Urban Renewal in one of the most deprived boroughs in the country. I will not be able to adjust.
There is someone whose valuable services in a deprived inner London borough would be lost because she recognises, as I hope I do, too, the special value of workplace nurseries for the under-fives.
Therefore, I have no hesitation in giving my full support to the new clause.

Mr. Tim Smith: It is remarkable that the Opposition should have selected for a major debate on Report the taxation of the benefit in kind of the provision of workplace nurseries. A wide range of subjects could have been chosen. Unemployment is now over 3 million. At the time of the Budget, the Opposition criticised it for its lack of measures for dealing with the jobs problem, although there was a major extension of the youth training scheme and fundamental changes in national insurance contribution charges. Therefore, it is remarkable that on Report the Opposition should choose as a subject for major debate the provision of workplace nurseries.

Mr. Campbell-Savours: On a point of order, Mr. Deputy Speaker. This is an attack on the Chair and the selection of amendments. I should be grateful if you would bring the hon. Gentleman back in order.

Mr. Deputy Speaker: I have not heard the hon. Gentleman criticise the selection of amendments. I understood that he was discussing the priority that the House placed on the debate that is now taking place.

Mr. Smith: I am grateful to you, Mr. Deputy Speaker. You will have noticed from the Amendment Paper that the only new clause tabled by the Opposition relating to unemployment is new clause 7, which simply calls on the Chancellor to include in the Financial Statement and Budget Report—

Mr. Deputy Speaker: Order. It might help if we got back to the nurseries. We are discussing new clauses 1 and 4.

Mr. Smith: The point that I am trying to make is that at a time of major unemployment the Opposition have selected a new clause that affects the interests of just 2,000 taxpayers. The interests of 2,000 taxpayers are at stake. That is the best estimate. The number could be less because it relates to the provision of 2,000 places in workplace nurseries. Therefore, the number of taxpayers affected could be less.

Ms. Harman: The hon. Gentleman might be talking about 2,000 taxpayers at the moment, but what about the movement to try to expand workplace nurseries? Many hundreds of thousands of people might find themselves in that situation. Perhaps the hon. Gentleman will address himself to that very important principle.

Mr. Smith: I am doing that at the moment. I am discussing those whom the Opposition are seeking to help—those 2,000 taxpayers. Are they the people in greatest need? I believe that they are not. They are an elite minority. We have already heard that some of them are enjoying a benefit of £4,000 a year, which is twice what it costs to send a child to a public day school in London. It is a very substantial benefit.
If the new clause were accepted, a massive anomaly would arise. What would we then say to married women who are forced to go out to work and have to leave their child with a child minder or employ a nanny? They are the people who suffer hardship or are in real difficulty.
I believe that, as a matter of principle, all benefits in kind should be taxed, including the two that are currently excepted—the 15p luncheon voucher and miners' coal. No encouragement should be given by the system of taxation to employers to pay people in kind. Such benefits create distortions in the labour market and inhibit mobility. The tax base needs to be widened and tax rates reduced.


The new clause would favour a privileged elite. I am astonished that the Opposition should even suggest that the House consider it.

Mr. Andrew F. Bennett: I was surprised that the hon. Member for Beaconsfield (Mr. Smith) has not looked more carefully at the Standing Orders that govern our debates and does not appreciate some of the difficulties facing the Opposition in tabling amendments on the key issues in the Budget. If he had looked more carefully into those problems, he would appreciate that we do not have all that much choice of areas that we can debate.
I welcome the fact that my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) has tabled the new clause on workplace nurseries, because it gives the House the opportunity to address itself to one of the central issues—the provision of nurseries—which is of fundamental importance to our economy. My hon. Friend suggested that workplace nurseries were a growing phenomenon. I suspect that he is wrong. In the north of England, one of the tragedies is that the number of workplace nurseries that have closed exceeds the number that have been opened. In the Lancashire textile mill towns, and, I suspect, in the Yorkshire mill towns, we have seen the demise of many traditional workplace nurseries. That has been unfortunate for people in those communities. Not only jobs but the benefit of the nurseries have been lost in those areas.
The House should recognise the importance of the nursery not just to the parents but to the children. The children can benefit from a well-run and well-supervised nursery. The tragedy is that nursery provision in this country lags badly behind all the other EEC countries. We should look at every possible way of expanding and improving nursery provision, whether it be workplace nurseries, nursery schools or day nurseries. The sad fact is that here little more than 22 per cent. of children get the opportunity to experience proper nursery education. In France and West Germany, by the time children are three, and certainly by the time they are four, the figure is almost 100 per cent.
Let us look at what has happened in this country in recent years. For the children, the provision of nurseries has improved marginally, in that many of the local authority nursery schools have gone over to part-time provision. However, that has an adverse effect for parents. Although it may allow more children part-time places so that they can experience learning through play in nurseries and learn to work with other children, it makes it harder for parents to take a job and take children to part-time places in a nursery. We should consider how to improve the facilities for parents and give them support in caring for their children.
Studies such as the "Head Start" studies in the United States and recent work at Bristol university make it clear that the child benefits from nursery provision—not just at the time or in the next few years in school, but throughout his lifetime. From those studies it was clear that people of 19 and 20 still appeared to have advantages over contemporaries who had not experienced nursery education. If we have any real belief at all in equal opportunities, we should make it absolutely clear that we consider the provision of nurseries essential to ensure that everybody has the same career prospects.
I recognise that there is considerable muddle about charges for nursery provision. It is worth noticing that most workplace nurseries make a charge, and there is some subsidy, although I suspect that often the subsidy is not particularly accurately calculated. It has more to do with wage negotiations. If the Inland Revenue tried to be fair, it would run into many problems. The on-costs of a nursery are sometimes loaded and sometimes offloaded.
We also have to recognise that for many parents the choice is between the workplace nursery or a local authority day nursery. Throughout the country there are fantastic variations. Some local authorities impose substantial means-tested charges for day nurseries and others provide the places free. Therefore, there would be anomalies between those who had to pay for places at a workplace nursery and those who were fortunate enough to get free day nursery places.
When children go to a state school, they receive free nursery education at the age of three. It is illogical for the Government to say that if one has a child of three, one can send him to a nursery school and there is no charge. It is considered to be not a perk, but a basic requirement. However, if one saves the state from having to make that provision and takes one's child to a workplace nursery, that is considered a tax perk. That is an odd anomaly. There is no merit in the Government's proposal for taxation. If there was any merit, it would be logical only for those from nought to three years old. But from the age of three onwards, for the fortunate children who live in the bigger, Labour-controlled cities, where nursery provision is available for about 60 to 70 per cent. of children, rather than in some of the Tory shires — such as Gloucestershire — where there is almost no nursery provision, there would certainly be some anomalies.
We must also recognise the considerable advantage—

Mr. Tim Smith: Does the hon. Gentleman advocate tax relief on the payment of fees to private nursery schools where there is no state provision?

Mr. Bennett: I thought that we were talking about private nursery schools provided by employers. In most cases, they are private institutions, although I realise that some are provided by the National Health Service and other such organisations.
We must recognise the benefit of workplace nurseries to children. Nothing is more demoralising for a child than to be trailed to a local authority nursery, which is often in the opposite direction from its mother's workplace, and involves the mother or the father having to leave home earlier to take the child to nursery and perhaps having problems picking him up at night. There are considerable advantages in the workplace nursery, to which the child can be taken with the minimum difficulty and which provides the parent with the opportunity to see the child during the day. Instead of removing what they call a concession, the Government should reaffirm their faith in nursery education and consider improving its provision. They should certainly not consider taxing it.
I should like to put some questions to the Minister about how the change will work in practice. What happens if a husband and wife, who have one child, are both at work and the wife decides to take the child to a nursery at her workplace? Will the amount of tax be decided according to her income and the cost of the nursery place, or will it


be based on the combined incomes of both parents? The fact that, at present, it is more likely that the nursery will be provided at the wife's workplace will affect both parents' opportunity to earn money.
What will be the position of the people at the margin? Now that the limit is set at nearly £8,000, many more people will be at the margin. In the north of England, many people are employed in piecework, especially in the machining and textile industries. With piecework, there is always the incentive to try to earn a little more, but if earning more money means that one will be pushed over the threshold, it may be an expensive extra piece of work. Will the limit be decided on weekly earnings or on annual earnings?
I support the new clause. I suggest that the House should make it clear that it believes that all people should have equal rights to job opportunities. Careers should not have to suffer because of the problems of finding proper child care facilities.
The final point to remember is that nursery education is extremely beneficial to children. The Government should be offering incentives, not disincentives, for its provision.

Mr. John Watts: My hon. Friend the Member for Banbury (Mr. Baldry) reminded the House that Britain has the second highest proportion of working women in Europe and a high proportion of working wives and mothers. One reason for that is the substantial tax advantages enjoyed by married couples when the wife works. Such a couple enjoy the higher married person's personal allowance and the wife's earned income allowance, which is the same as having an additional single person's allowance. The advantage is substantial when it is compared with the income of a family organised on more traditional lines, where the husband and father works to earn the money and the wife and mother works in the home and looks after the children. They have only the personal married allowance. I look forward with great interest to the Green Paper on reform of personal taxation foreshadowed in the Budget, and to the proposal, which I hope it will contain, to introduce greater equity into the taxation of the incomes of married couples.
In the context of such taxation there is no justification for enshrining a substantial additional tax advantage for working mothers, albeit the new clause relates only to a small and privileged minority. As my hon. Friend the Member for Croydon, South (Sir W. Clark) reminded us, the new clause will affect about 2,000 children and their parents. The hon. Member for Greenwich (Mr. Barnett) spoke of how important it is for young children to have their mothers close at hand and advocated the workplace nursery. I take what is possibly the unfashionable view, but not necessarily an unpopular one. I believe that it is preferable for pre-school age children to have their mothers close at hand, for the mothers of those children not to work and not to park them at workplace or local authority nurseries, but to care for them in the home.

Ms. Jo Richardson: What does the hon. Member intend to do with the 1 million one-parent families?

Mr. Watts: This is my personal view. I accept that it is a matter of personal choice how each family organises

its life. If a mother wishes to work, I would not wish to place any legislative barrier in her way. However, I do not believe that there should be any encouragement by granting an additional tax benefit, such as that contained in the new clause, to mothers of young children to work and not to care for their children in the home.

Mr. Randall: I had not intended to take part in the debate, but after hearing some of the comments from Conservative Members, I cannot refrain. My hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) made a caring and compassionate introductory speech. Subsequent speeches seemed to be divided into two rough areas. My hon. Friend the Member for Greenwich (Mr. Barnett) said that the argument was a social one, but the Government have presented the argument in financial terms. No wonder the Conservative party is seen as hard and uncaring, with a philosophy based on greed and self-interest. I hope that the debate will be reported fully so that the public will realise that the Government are hard and uncaring and consider matters in purely money terms. That is very sad.
Hon. Members have discussed various schemes in Britain, but we are obviously doing much worse than other European countries. France, Denmark and Holland make educational provision for between 20 and 30 per cent. of their two-year-olds; we make no provision. Belgium, France and the Netherlands make educational provision for more than 95 per cent. of their four-year-olds. The comparable figures for West Germany and the United Kingdom are 75 per cent. and 56 per cent. respectively. Under this Government, the kids are being deprived.
The hon. Member for Beaconsfield (Mr. Smith) should have done his homework before coming to the Chamber. I know that sometimes we all make impetuous speeches when we are perhaps fired with enthusiasm.

Mr. Sedgemore: The impetuous speeches are all from the Government side.

Mr. Randall: There are others as well.
The hon. Member for Beaconsfield should have made his arguments a little clearer. He said that the matter was not worth considering because it dealt with a mere 2,000 children. As a Socialist, I cannot think in those terms. If 2,000 young children can benefit and only a small amount of money is involved, why can we not just go ahead? Two and a half weeks ago in Committee the Government gave £50 million per annum to the land and property speculators through the abolition of the land development grant; yet they cannot afford to give money to the nurses and the less well-off. The bored children who should have proper care at workplace nurseries when their parents are working are deprived.
The hon. Member for Slough (Mr. Watts) sounded as though he was going back into the last century. He felt that there was no justification in taxation terms for going ahead with the scheme, so he would vote against the new clause. The hon. Gentleman thinks in terms of the taxation system and money. That is the Conservative party's graven image. I appeal to hon. Members to support the measure.
The hon. Member for Croydon, South (Sir W. Clark) complained that the Labour party was good at spending other people's money. That is a myth that the Conservative party used in the 1983 general election and that it tries to


perpetuate while it continues with this immense drift of wealth from the less well-off to the rich. Although there is only a small number of workplace nurseries, it is part of the Conservative party's ethos not to help the people on low incomes but to transfer the money to the rich. The Conservative party has shown that it is not a thrifty party by the way in which it spends the revenue from North sea oil on unemployment. This is the essence of the new clause — opportunities should be provided for mothers and fathers, especially in single-parent families, to contribute to the economy. That is a laudable aim. The argument advanced by the hon. Member for Croydon, South does not stand up.
We are considering whether to provide nurseries in workplaces for which the employers and employees will pay. We are asking for tax relief on the contributions. The new clause is attractive in that it provides a genuine opportunity for women to do what they want to do. We talk about equal opportunities and freedom of the individual — this is what it is all about. It is not about the opportunity for one person to rip off someone else. That is the interpretation offered by the Government. Freedom of the individual involves economic freedom to do the job that one would like to do.
People with considerable skills live in Britain — for example, doctors and nurses. Partly because of cuts, some hospitals are short of nurses with particular skills. It takes a long time and considerable expense to train a nurse. In terms of economic arguments, it would seem wise to use those skills rather than have them constricted within the family framework because there are no opportunities to provide care for children while parents are at work.
Women will be the main beneficiaries of this scheme, although it applies also to some single-parent families. There has been a growth in jobs in certain sectors that predominantly employ women. That scope for job creation could be enhanced by providing the appropriate tax relief for these nurseries. Jobs are being created not only in the supermarkets and service industries but in the electronics industry. Too few women are employed in the high-tech industries. There is a dearth of women taking engineering degrees. To have a good high-tech industry it is important to provide opportunities for women.
The hon. Member for Slough said that we should keep the women in the home and that he did not care about all the problems about which the Labour party waffles on. He represents an area where, last year, house prices increased by 17 per cent. and where women are contributing to mortgage repayments. The hon. Gentleman says, "You cannot do that. You stay at home." This means that people have to live on faggots and peas and in a deprived way.

Mr. Watts: I am sure that when the hon. Gentleman checks the Official Report tomorrow, he will see that I said nothing about keeping women in the home. I said that it had to be a matter of personal choice. It is not a choice that should be influenced by an additional substantial tax benefit to working mothers.

Mr. Randall: Perhaps we should go to women who make big contributions to the household mortgage repayments by working but instinctively want to stay at how with their children because there are no workplace nurseries. I am sure that a substantial number of people in Slough feel that way. They are deprived.
Conservative Members have referred to car parks, social clubs and sports facilities. That is a fair point to raise

if one wants to invoke the financial or economic arguments. However, I am not inclined to do that. I shall vote for the measure for purely social reasons, because that is the civilised thing to do. Why are the benefits of car parks, social clubs and sports facilities not taxed? The Government are hindering the development of workplace nurseries through their taxatarion system. Why are workplace nurseries treated differently from car parks, social clubs and sports facilities?
The present tax arrangements will have two consequences. First, they might lead to nurseries closing through lack of demand or because the employer decides that their penal nature makes the arrangement unattractive. Alternatively, the nurseries will be used only by the children of those on higher incomes. The Opposition believe in a more equitable and fairer society. Why do we not have an arrangement whereby those on lower incomes will or could benefit? In clause after clause there is a shift of wealth from the poor or the less well off to the very rich. The workplace nursery scheme, which has great potential, is being throttled before it has had time to blossom. I hope that hon. Members on both sides of the House will support the clause.

Mr. Lewis Stevens: The new clause asks for total exemption of nursery taxes. I do not want to go that far. My hon. Friend the Member for Wealden (Sir G. Johnson Smith) and I tabled a new clause which went, in a slightly different way, to equate the taxation of nursery provision more to the taxation of company cars Unfortunately, that was not selected. I shall try closely to confine myself to new clause 1.
It was only 18 months ago that the Treasury decided to tax workplace nurseries. The effect of that was a sudden blow to many who might have been paying £20 or £30 a week in contribution towards a workplace nursery. They found themselves having to pay £15 a week more at the top of the scale. That is a large amount of money to find. The qualifying earnings figure is £8,500 and the difference in take-home pay can determine whether it is worth carrying on with that job or not. We are seeing the return of punitive taxation. It has existed theoretically since 1948 but it is only now that the Treasury has decided to introduce it in practice.

Mr. Michael Shersby: Does my hon. Friend agree that the £8,500 limit is part of the problem? I believe that that limit was introduced by the Labour party when it was in power. I hope that the Government will pay urgent attention to dealing with the problem.

Mr. Stevens: I agree with my hon. Friend that the £8,500 is part of the problem. The Government's approach—it is one that I do not disagree with—is to try to cut out perks in general by making them subject to tax or providing that they be paid directly in cash. The effect of keeping the £8,500 limit since 1978 or 1979 is to bring more people into a tax bracket, but surely workplace nurseries are subject to different considerations. Why has the Treasury decided to tax now? Is there a suspicion that workplace nursery provision will expand and will be used by more than the present 2,000? I believe that the provision will expand unless taxation is introduced which prevents that.
There are problems with skills because we can have too many of one type and too few of another. The new technologies will be taught to comparatively few in the


first place, but often to youngish people, both male and female. Companies that want to keep those people at work for the maximum time will look more and more towards provisions such as workplace nurseries to enable them to derive the maximum advantage from their skills. Companies will learn to provide nurseries on a wider basis to get the best return on the investment that they have made. It must be helpful overall for the country to ensure that the facility exists.
A top-end assessment of £4,000 in London has been suggested and that could apply. I suggest that that is an assessment of cost and not of worth. Cost and worth are different things. A person may be paying a contribution of about £30 a week but how much is that benefit really worth? It might cost about £80 a week to achieve the standards in workplace nurseries that are required by the Department of Health and Social Security but it could be worth less than that. The worth of the facility is no different when it has to be produced to a higher standard than in many factories. If people work in a better looking office than another one, how much is it worth to work there? It is an attraction, but it does not lead to a decision to move to it. The assessment that some would make of the value of the facility and the amount to be charged could be unfair. That is why my hon. Friend the Member for Wealden and I were seeking to impose a ceiling of £1,300.
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There is a definite advantage in having the facility of a workplace nursery but I believe that it should be a limited facility in terms of the assessment that should apply. That is what I would have preferred for this debate but unfortunately our amendment was not selected. The principle of being able to tax indefinitely on the provision of a workplace nursery will be detrimental to those who are using it now, to future users, to the development of that facility, to the retention of skills where they are wanted and perhaps to training if there will be doubts about how much it is worth to train to a higher level. Those are the disadvantages of this type of taxation. I hope that my hon. Friend the Minister will consider putting a ceiling on the taxation of workplace nurseries if he refuses the non-exemption. I have reservations about total exemption.
I want to draw the attention of the Minister to transitional arrangements. If the Bill is passed as it stands, those who took jobs with a company with a workplace nursery will be faced, over the next year and in the future, with a high taxation level. That taxation level will be one for which they did not bargain.
In many instances, when new forms of taxation are introduced, a transitional period is allowed. It will not be unfair to consider allowing a transitional period at least for those who have children in workplace nurseries now. I should be obliged if the Minister would make a statement on any thoughts he may have on a transitional period for those people.
I urge my hon. Friend to consider carefully the damaging effect that this type of taxation would have. No one likes, more than I do the idea of a stable background of a married couple with a family where the woman spends a fair amount of time at home looking after that family, as was suggested by my hon. Friend the Member for Slough (Mr. Watts). Both society and this House, in its legislation, have sought to introduce extensions and a

choice. We have chosen to do that and we have a duty to take account of that and respect the problems and the developments of workplace nurseries and the needs of our industries in that area.

Ms. Richardson: I agree with many of the arguments advanced by the hon. Member for Nuneaton (Mr. Stevens). It seems that he does not wish to go as far as the Opposition's new clause, but is prepared to go a little further than his right hon. and hon. Friends. I agreed with him until he uttered his final remarks. He referred to the need for the mother to remain at home, wherever possible, during the early formative years of the child, but he emphasised that there should be a choice. The difference between us is that the Opposition believe that if it is a two-parent family, fathers should share in the care of their children. We would encourage both parents to have a caring and sharing role, wherever possible. Both the father and the mother should have the opportunity to work and to look after their children.
This is the second time that this debate has been held. My hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) and perhaps other hon. Members will recall that a similar debate last took place in July 1984. It lasted from about 2 or 3 am until about 8 am. I am pleased that today it is taking place at a more reasonable time. Despite the almost empty Press Gallery, I hope that attention will be drawn to this matter in tomorrow's press. It is vital to many women, not only to those who use workplace nurseries but also to those who feel that they may want to use them and who may wish to encourage their employers to consider providing them.
In last year's debate, 99 per cent. of the speeches—all of which supported the principle — were made by Opposition Members. Only one Back-Bench Conservative Member spoke in that debate. Today we have heard the views of a few more Conservative Members. I do not like most of their views, but I am pleased that the view of at least two and perhaps three Conservative Members is the same as that of the Opposition on this important subject. Our debate in 1984 did not shift the Government. During the last 12 months, the anxieties of parents with children in workplace nurseries have not diminished.
I spoke only two weeks ago to a parent who visited me here. She has a child in a workplace nursery and she feels that a sword is hanging over her that might drop at any moment. If the Government do not consider sympathetically the Opposition's case for not taxing workplace nurseries, she believes that her life could fall apart. She is a nurse and she worked very hard to obtain her qualifications. She is a one-parent family. Her child is in a workplace nursery but it is an effort to meet the cost of the nursery care out of her pay.
If she had to pay extra tax on top of the charges already made, she would have to give up her job. She does not want to do so for a number of reasons. First, she believes that the National Health Service provides a service that should be supported and that she has a contribution to make to it. Secondly, she believes that she has a right to work. Thirdly—this, she told me, is the most important point of all — during the period that her little girl has been in the nursery she has benefited greatly. She knows that her mother is working nearby. As an only child, she is benefiting from being with other children and from


growing up in those surroundings. She said that it would be a great pity — indeed, worse than that — if she was unable to afford to keep her child in the nursery.
The Government are cutting off their nose to spite their face by refusing to remove this tax and by refusing to recognise that its existence is a disincentive if people with children wish to go to work. The Government may indeed lose a small amount of revenue, but if parents have to give up working, the Government will lose even more in tax. Tax is paid by parents who are in work. They also make national insurance contributions. They are also valuable members of the work force.
The hon. Member for Banbury (Mr. Baldry) spoke to new clause 4. I commend to hon. Members who are so bitterly opposed to it a very interesting piece of research into the child care needs of NHS shift workers who use the Blackshaw nursery centre. It may provide them with an eye-opener in terms of good practice in the provision of child care nurseries. This centre was the first of its kind and was opened in January 1982. It is funded by the Department of the Environment and the London borough of Wandsworth through an urban aid grant. This purpose-built nursery is situated in the grounds of St. George's hospital, Wandsworth. It has a professional staff and it is managed by a voluntary management committee, consisting of members of the community health centre, the local workplace support group and other support groups. It is very well run. It was provided because of the child care demands of the people who work in and around the hospital. My hon. Friend the Member for Hodge Hill might care to note that the nursery is open from 7 am until 10 pm, a period that covers almost the whole of the hospital's work shifts.
Let us not run away with the idea that those who use these nurseries do not pay. They certainly do. Some Conservative Members think that this is a buckshee provision — that charity is being provided for these women. It is not a charity or a perk. I object to the word "perk". It should be regarded as the beginning of extended and better child care provision for children throughout the country in order to allow women to exercise their right to work, train and retrain. If we are to make it possible for women to work, we must not decide the fate of women and children on the narrow basis of how much money the Treasury might or might not lose. We should examine the problems of working parents, in particular working mothers.
I was privileged this morning to attend an exhibition that is being held in East Ham town hall by the engineer's and surveyor's department of the London borough of Newham. It has mounted an exhibition of the work it is doing to encourage women to train as scientists and engineers. I remind the Government that this is the International Year of Youth. As it has encouraged women to enter the engineer's and surveyor's department, it decided to mount an exhibition, and this morning it invited a large number of schoolgirls to visit the exhibition. It is considering having creche facilities, which is the right way to approach the matter. If we are to encourage employers to operate genuine equal opportunities, we must face up to the needs of working parents.
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Many groups have supported the workplace nursery campaign. But in addition to the women's groups, mixed groups, community health councils, community groups of

all types, parents and other individuals, the campaign has had some unlikely allies, and I say that meaning no disrespect, for example, to the Institute of Personnel Management. Not only are employees protesting about the present situation, but in some instances managements are complaining about the approach of the Government. They, as employers, want to adopt good practices, but they are not being allowed to do so. The Institute of Personnel Management, in a paper dated 1 May referring to remarks made to a Select Committee, said:
In the industrial revolution, it was employers who sent little boys up chimneys and it was governments who brought in legislation to stop them. Now, employers are seeking to provide welfare facilities and arrangements which enable people to work and to use their talent in the cause of increasing Britain's productivity and economic performance, and it is government that is trying to stop them.
In other words, the view of the Institute of Personnel Management — not simply of a community health council or a group of women — is that the Government are wrong in their present policy. The Institute paper continued:
The taxation of creches is socially, morally and economically wrong. They are not benefits in the hands of the recipients. They are welfare and employment facilities which remove impediments to the employment prospects of certain groups in the community.
The most outrageous feminist could not have put it better. That is precisely what we want, in the public and private sector, but the Government are preventing that from happening. The institute ended by appealing
to the Government in the interests of the use of talent, the mobility of labour and good employment practice … now to introduce an amendment to the Finance Bill.
That body—if not Conservative, then normally cautious in matters of this type—is strongly in favour of the case we have made.
I shall not understand the Minister if, when he replies, he says that the private and public sectors do not want this type of nursery provision. It is clear that they do. If the Government are serious about providing employment possibilities with choice for everyone in the community, they will accept our amendment.

Mr. Neil Hamilton: The hon. Member for Barking (Ms. Richardson) reminded hon. Members that when I last entertained the House to my views on this matter it was about 5 o'clock in the morning. On that occasion she spoke a little before that. It is more comfortable to be addressing the topic in the afternoon.
In the intervening year, hon. Members will have been the recipients of a considerable quantity of misleading, biased and incorrect information from various campaigns—

Mr. Austin Mitchell: Such as the Treasury brief?

Mr. Hamilton: I never speak to a Treasury brief, as the hon. Gentleman should be aware.
Hon. Members have been the recipients of much misleading information, much of which has been reiterated by Opposition Members today, as it was when we debated the matter a year ago. It cannot be disguised that the potential beneficiaries of the change in the law that is being proposed by Opposition Members would be a small number of fortunate individuals. The number is estimated at present by the Inland Revenue at 2,000 people in respect of about 70 nurseries throughout the country. It is clear that the lowest paid employees, even under the


present state of the law, are not subject to tax on a benefit provided by an employer where it constitutes a nursery facility of the type that we are now debating.
I found it grotesque that the hon. Member for Peckham (Ms. Harman)—who, alas, is no longer in her place—should say how important creche facilities would be, for example, for Members of Parliament. When one considers the income of hon. Members, it seems grotesque that many low-paid people should be called on to pay through their taxes for benefits for those who earn considerably more.
When we consider that one starts paying income tax in Britain at about one third of the average wage—a level which is far too low, in spite of what the Government have done to raise it over the years — it seems wrong, even on Socialist principles, to require people in those circumstances to pay for benefits which many can afford to pay for themselves.
There is also a point of principle involved here. It is an extremely inefficient way of targeting benefits on people who are on below average incomes to do it through the general tax system in the way that the new clause proposes. Similarly, it is a shame that we did not do something to cut down on child benefit in the recent social security reviews, because at least three quarters of what is paid out in child benefit goes to those who are in no serious need. Therefore, it would have been better had we used that money, for example, to raise income tax thresholds or to reduce rates so as to take out of the charge to tax many of those on low incomes to whom I have referred.
What is proposed in the new clause — and in the special pleading for the various, no doubt worthy, causes which are brought to our attention from time to time when tax concessions are sought — is a return to the truck system, so that the employer, instead of giving the employee the freedom, by being paid in cash, to choose what to buy with that cash, ties him to certain forms of expenditure that the employer, not the employee, decides is good for him. In the middle ages, the majority of the people of Britain were adscriptus glebae—bound to the land—and that would be the result of the new clause if it were extended into a more generalised principle.
We must debate this issue as a question of principle, because if the tax system is not based on some principles, it degenerates into a welter of special pleading and benefits. That has undermined our whole social security and tax system, and I am pleased that at last we have a Government who are determined to start tackling the accumulation of special advantages that are given to individuals on no special principle.
The hon. Member for Birmingham, Hodge Hill (Mr. Davis) said that there had been a change in the practice of the Revenue in relation to the taxation of employer-provided workplace nurseries. He seemed to imply that in the past such benefits in kind had been exempt from tax. That has not been the case. It is a course over which we cantered last year in considerable detail, when the Financial Secretary explained the position, and nobody has come forward to refute what he then said.
There are two types of benefit in kind for tax purposes, which are treated in different ways. First of all, there are those that can be converted into money. Benefits in kind that can be converted into money have always been taxed on the amount of the benefit in money terms. Secondly, there are those that are not convertible into money, and

workplace nurseries would come into that category, along with, for example, board and lodging provided by an employer, or travel, meals, uniforms, education, and so on and so forth. These are personal benefits in some sense and cannot be exchanged for money.
Those non-convertible benefits in kind, on the general principles of income tax, have never been chargeable to tax but since 1948 a special regime has applied to company directors and those classed as higher paid employees. So, those who are not company directors or higher paid employees are still not within the charge to tax in respect of the employer-provided workplace nursery. It is interesting to point out that a Labour Government brought about the change to correct what I think was an imbalance whereby one form of remuneration was taxed on a different basis from cash. That is a fundamentally illogical principle and one which strikes at the whole basis of fairness in the tax system.

Mr. Sedgemore: It appears to be one of the hon. Gentleman's major points that this is not a new tax. I served on the Committee last year and took part in the debate when the Minister appeared to say the same thing. I gave evidence to the Committee that there were 98 workplace nurseries in Britain where tax was not being paid or collected. How does he square that with this not being a new tax?

Mr. Hamilton: If the benefit in kind is not drawn to the attention of the Revenue it can hardly be expected to tax it. I have no window into the mind of individual taxpayers and how they fill in their tax returns but in so far as it was generally assumed not to be a taxable emolument, taxpayers did not fill in returns. [Interruption.] If hon. Members will listen to what I am saying, I am quite prepared for them to intervene later in my speech if they disagree with me. In so far as the Revenue was unaware that this benefit in kind was being provided to particular individuals, it could not be taxed. In many other cases the value of the benefit received might have been too small to make it worth assessing. I do not know. Certainly a de minimise rule is very sensibly applied in other areas of the tax system as well.

Mr. Mark Fisher: Could the hon. Gentleman give the House an example of where the tax was being collected?

Mr. Hamilton: No, I cannot.

Mr. Fisher: The hon. Gentleman cannot because such an example never existed.

Mr. Hamilton: Just because I cannot name an example does not mean that it did not exist. I am prepared to give the hon. Gentleman the benefit of the doubt and to say that in the past people have not been taxed on a benefit which was taxable. That can be for one of two reasons: first of all, that the Revenue did not know and, secondly, that it was not worth collecting. Either one or other of those reasons is the cause. One of the reasons why more people are now in receipt of a taxable benefit in relation to these nurseries is that as incomes have risen and the £8,500 definition of what is a higher paid employee has remained the same, so more people have come into the tax net. Probably the other reason why nobody has been assessed in the past is that a higher proportion of those in receipt


of the benefit were not actually within the charge to tax because they were not higher paid employees for tax purposes.
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There is no justification for the hon. Member for Hodge Hill (Mr. Davis) to say that the tax position in law has changed or that the practice of the Revenue has changed. All the facts point to the situation being just the same today as it was in any other year since 1948. A great many red herrings have been put forward and hon. Members who support either of the new clauses have sought to draw some comparison with various other benefits, if they can be called benefits, which are provided for employees. We dealt with car parking spaces last year in some detail and once again the tax position is perfectly clear and is on the record. This would also apply to sports facilities and the other examples which have been given this afternoon. For company directors and those who are higher paid employees, such benefits are taxable even though they may not be taxed for the reasons I have just described in relation to workplace nurseries.
Lest he has forgotten, I should explain to the hon. Member for Hodge Hill, as I did last year, that such benefits are not in practice taxed in certain instances because the value of the benefit for tax purposes is so small as not to make it worthwhile collecting. In the case of a car parking space or any benefit where the value is calculated because it is land for tax purposes, section 531 (1) of the Income and Corporation Taxes Act 1970 provides:
the annual value of land shall be taken to be the rent which might reasonably be expected to be obtained on a letting from year to year if the tenant undertook to pay all usual tenant's rates and taxes, and if the landlord undertook to bear the costs of the repairs and insurance, and other expenses, if any, necessary for maintaining the subject of the valuation in a state to command that rent.
In the case of a car parking space it is quite obvious that the gross annual value for tax purposes of a piece of land 6 ft by 12 ft will be tiny and not worth the Revenue's trouble to collect.

Mr. Terry Davis: Are all car parks provided on open land? That is not the case in the City of London. He must have seen a report circulated by the London Amenity Transport Association about the effect of company cars. He must know it has been calculated that the cost of car parks in London can be as much as £500 a year per car.

Mr. Hamilton: In that case it is assessable. If the hon. Gentleman knows of any particular instances where tax is not being charged perhaps he would like to draw them to the attention of the Inland Revenue, which will no doubt be glad to receive the information. The law remains as I have explained it, and that is what we are talking about. The hon. Gentleman said the law has changed. I think I have explained that the law has not changed; neither has the practice. The example of the car parking space is no different, in the way that the Inland Revenue treats it, from the employer-provided workplace nursery.

Mr. Austin Mitchell: How would the hon. Member calculate the value of his own car parking space in the House garage? Can he say what return he makes to the Inland Revenue on that?

Mr. Hamilton: I am not responsible for that calculation. The Fees Office would, I am sure, be able to

provide that interesting information. The point remains the same, that if it is taxable it is on the basis that I have described under section 531(1) of the Income and Corporation Taxes Act. As a matter of course the Revenue does not seek to assess individuals where the amount of money involved is very small. In an extraordinarily misleading round robin which was distributed by the workplace nurseries campaign in the last few days, a comparison is sought to be drawn with various other kinds of so-called benefits, which it believes are treated differently from workplace nurseries. It mentions, for example, pensions, which it says are exempt from income tax. I am sure that is a surprise to most pensioners who pay income tax on their pensions. It is a kind of deferred tax in as much as one does not pay tax at the time contributions are paid but ultimately tax is paid in the normal way on receipt of a pension.
Share options are also mentioned. The campaign round robin says, correctly, that they were exempted from income tax last year. What is not said is that share options are subject to capital gains tax, as and when they are exercised, on any capital gain made. That is perfectly proper. Shares are capital not income, so they are subject to the capital gains tax regime and not to the income tax regime. If shares are provided at an undervalue, the individual taxpayer is taxed on a benefit equivalent to an interest-free loan of the same amount as the market value of the shares. That is another example that falls flat on its face.
Much has been made of the system of taxation of company cars. The value of the benefit of a company car is assessed by the Inland Revenue on a scale, and the main reason why it is assessed on a scale basis rather than on an individual basis is the difficulty of apportioning the business and private uses of a vehicle. Obviously, where there is an arbitrary system, such as a scale in this instance, there will not be equality of treatment, but the administrative complications of trying to assess each individual on the basis of the exact proportion of private and business use of the car would be formidable. This is a means of reducing the administrative costs while maintaining equality of treatment.
To try to equate employer-provided workplace nurseries, where the benefit is obvious and easily measurable, with the benefits that derive from the provision of a motor car that can be used partly for business purposes and partly for private purposes is unsustainable. If we were to change the system of treatment of benefits in kind on that basis, we should be able to apply the same system to the whole of the benefits in kind that are provided by the employers. That would be grossly unjust to those who do not receive their remuneration by means of payment in kind but receive it through payment in cash.
In general, there are no exceptions to the rule that a benefit in kind is taxed on the same basis as a cash payment of equivalent amount. There are two exceptions. One is luncheon vouchers, but the exception is less valuable than it used to be because of the 15p a day limit on the value of the benefit, so that it is withering away. The other great benefit is concessionary coal provided the coal miners. I do not wish to intrude too much into the private griefs of the Labour party and dilate on that at any great length, but that concession is insupportable.

Mr. Douglas Hogg: I follow my hon. Friend's argument, which has a great deal of force. However, is there not another point that my hon. Friend should perhaps consider? Where one is dealing with a benefit in kind that forms part of remuneration, one is dealing essentially with remuneration, such as free coal, which can be brought within the Taxes Act. However, the provision of nurseries is not so much a benefit in kind as something that has to be provided to enable the employee to do the work. If one wanted to make a distinction, that distinction could be made.

Mr. Hamilton: That is what it is not. It is not a payment that is made to enable any person to do the job but one to enable a particular individual to do the job, and if everybody were entitled to have his tax based on the cost to him, because of his personal situation, of doing a particular job, there would be enormous opportunities for avoidance and the tax base would be substantially reduced. I am about to point out some of the difficulties that would arise if the analysis made by my hon. Friend the Member for Grantham (Mr. Hogg) were to be accepted.
My hon. Friend the Member for Banbury (Mr. Baldry) seemed to say that if an individual were to participate in the labour market, the costs of that participation should be borne by the rest of the country by means of a tax concession. I put to him, although he did not answer my point exactly, the case of somebody who lives in an isolated part of the country, say Brecon, where there is no public transport. Are the costs of his getting to work then to fall on the general taxpayer? I can see no distinction in principle between an employer giving him a grant for a car, for example, and an employer either giving a parent a grant to send a child to a nursery or providing nursery facilities.
Similarly, I am puzzled, as my hon. Friend the Member for Beaconsfield (Mr. Smith) was, by the limitations that the Opposition have placed upon themselves through the new clause. Why cannot one obtain a tax relief for child minders or nannies? I know that Mr. Peregrine Worsthorne thinks that the unemployment problem would be resolved if all domestic servants could be employed by means of tax relief. I am surprised to find that Labour Members are in the same camp as that distinguished journalist. That seems ultimately to be the road down which they are going.
What about those who are self-employed, for example, who might be in the same position as the one-parent families about whom the hon. Member for Barking talked? There is nobody to provide a nursery for them because by definition they are not employed. Why should they not get the relief? What about individuals with large families who find it difficult to undertake employment because they have children to care for all round the clock? Will they be able to claim for the cost of domestic servants against their tax bill? What about night shift workers? Will they obtain tax relief for an employee to look after children at night, and so on? What about childless families and those with children over five? Why should they be made to pay for what is, after all, a voluntary act — having a child? Neutrality of tax treatment and remuneration is a valuable and vital principle in our tax system and it would be a great pity if we were to allow this exception to undermine it.
The payments that one has to make to earn one's income are deductible for tax purposes, but here we are talking about a different point. The payments that are made, for example, to pay for a child to go to a nursery

are not paid to undertake the job itself. The nexus is the personal position of the taxpayer and not the requirements of the job. If the basis of our tax system is altered to accommodate the change proposed by the Labour party, that would go a long way towards undermining what fairness there is in it.

Mr. Peter Pike: The hon. Member for Tatton (Mr. Hamilton) said that Labour Members had raised a few red herrings. If anybody has drawn a red herring across the debate, it is the hon. Gentleman.
We are debating an important new clause that gives protection to existing workplace nurseries and would support the provision of future workplace nurseries. It is an important new clause that is worthy of support.
To call these nurseries a perk is not a correct description of them. They provide something that is essential to the parent, whether it is the mother or the father, to the employer and, ultimately, to the nation. My hon. Friend the Member for Barking (Ms. Richardson) made the important point that, while some revenue would be lost to the nation if the new clause were carried, if the parent had to give up work as a result of the loss of nursery provision, the nation would lose taxation and national insurance contributions as a result. This is not just a one-sided story.
The hon. Member for Tatton did not like the reference to car parks, but they are relevant. One cannot just dismiss the provision of car parking spaces for employees as being of no consequence. My hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) forcefully made the point that parking spaces, particularly in the London area but also in many major cities, are a costly item, although a worthwhile provision for the employee. But we are not talking only about parking places. When I worked in industry we had subsidised public transport to get people to factories. In my case it was because the factory was in a difficult place to get to. Subsidised transport is fairly common and one could argue that the portion paid by the employer should be taxed. I am certainly not advocating that, but it is another example of something provided by an employer, as are workplace nurseries, for the benefit not just of the employee but of the employer.
There are other benefits for workers, such as staff sales, and one would find it difficult to determine whether they were perks and on what basis one would tax them if they were to come into the category to which the Government felt they should extend taxation. As many of my hon. Friends have said in this short debate, there is very little provision for nurseries. We compare very unfavourably with all the other nations of Europe. It is an area of care which we should develop, and the state through the local education authority should be providing more nursery facilities for children under the age of five.
I am fortunate in that I represent a borough in which there is more than average provision for nurseries. But even in Burnley, the provision of day nurseries for people going to work is inadequate. My hon. Friend the Member for Denton and Reddish (Mr. Bennett) said that in the north-west, in the textile industry, and in Yorkshire it used to be a common provision, but as industries changed their nature and had to make economies to compete in the world it was gradually cut out and there is much smaller provision of nursery facilities in those industries now than there was a few years ago.
This amendment is important to the working mother and the working father. It would supplement the provision which is available but which is at a woefully low level. However, there is some provision in the state system and our proposal would supplement and encourage it and ensure that the parent would not have to pay tax on it. The new clause is well worth while and I hope that many Conservative Members will support us when we vote in the Division.

Mr. Derek Fatchett: Two major themes have been running through this debate and I should like to comment upon them. First, a number of Conservative Members who oppose the new clause have suggested that the reason for doing so is that they want perks to be taxed. I would take that argument with greater seriousness if they made two points in addition simply to saying they want perks to be taxed. I would take it with greater seriousness if they said that they wanted to see consistency in the taxing of perks.
It has emerged from this debate that there are differences in treatment for, say, canteens, car parks, social clubs and sports facilities and, of course, the case has been quoted many times of the greater benefit of a car provided by an employer. If the argument on perks is to be a strong one, there needs to be an argument in addition to that in relation to consistency. We have heard no arguments from Conservative Members about that.
Secondly, I would be much more convinced by Conservative Members if they showed a greater enthusiasm in their discovery of perks and their willingness to tax perks rather than simply using that enthusiasm in relation to workplace nurseries. Two or three weeks ago I went to watch half a day's play in the test match at Headingley. I should preface my remarks by saying that I paid for a public seat. As I walked round the ground, I noticed that one of the recent developments at the Yorkshire cricket club ground was the provision of private boxes or executive suites. I also noticed the amount of alcohol available. I heard some comments of a nature which in some cases I thought was disagreeable. I wondered how much of it was paid for indirectly through the Exchequer both in terms of tax allowances and untaxed perks. If we were to spend money in that way, I wondered whether it would be better spent on workplace nurseries rather than on entertaining business men at cricket grounds and at other sporting events.
If Conservative Members were consistent in their comments, they would be looking for broader taxation on perks.

Mr. Neil Hamilton: rose—

Mr. Fatchett: I will not give way to the hon. Gentleman because he inflicted upon the House the great benefit of his knowledge for some time, and it might be unfair to my hon. Friends who want to speak if I were to give way.
My first point concerned consistency in relation to perks. My second point relates to the argument that workplace nurseries should be seen as another perk and should he taxed. The hon. Member for Tatton (Mr. Hamilton) did not answer very effectively—because I do not think he can — an intervention made by the hon. Member for Grantham (Mr. Hogg). The crucial difference—this has been a core argument throughout — between workplace nurseries and other perks is that workplace nurseries are

crucial in many cases to enable people to exercise their right to work. We are talking about women in the vast majority of cases.
I do not want to use the term "perk" any further in this debate. I see the right to a workplace nursery as an essential part of the right to work. If the hon. Gentleman were to say to us that he supported a campaign for local authority provision, we might not be having this argument. But the hon. Gentleman knows that in many parts of the country where his party is in control of local government the provision of nurseries and care for children under five is very limited indeed. What we are looking for in this new clause is not elitist support for a small number of people.
When the Financial Secretary replies, will he tell us how much implementation of the new clause would cost the Exchequer? I suspect we shall be talking about a small sum of money. It is not just a matter of providing for an elite number, which is the argument we have heard from the Conservative Benches; it is a matter of making it possible for more and more women, and in some cases men, to make use of workplace nurseries in order to exercise the right to work. I am making a fundamental argument. Many of us take it for granted that we should have the right to work and that we should have a workplace in which we can develop our talents. It is wrong for the Government and for this House to deny many people the right to exercise that opportunity.
This has been an important debate. What has emerged from it are the different perceptions of the role of women in the labour market held by Conservative Members and Labour Members. Throughout the debate Conservative Members have been saying that they prefer a marginalised role for women in the labour market. They prefer to see women in the home, and, with one or two exceptions, they are not keen to see women develop their talents as of right as they are to see men do so. That difference has been crucial.
The debate has highlighted genuine differences between the two sides of the House and the two major political forces in our society. Those differences will come across to the electorate, and it is not without significance that when we have debates that highlight fundamental differences the alliance is hardly represented in the Chamber and its limited representation is characterised by silence. Many people outside who are keen on workplace nurseries will note that Liberal and SDP Members have hardly bothered to attend and have not yet shown any interest in speaking in this important debate.

Mr. Douglas Hogg: Although the new clause is extremely attractive, it is not consistent with existing tax law. My hon. Friend the Member for Tatton (Mr. Hamilton) was right to say that the new clause goes beyond present tax laws. I was wrong when I intervened during his speech, because I do not believe that one can say that the provision of a nursery is wholly and necessarily for the purposes of employment, in the sense in which that phrase is meant in our tax laws.
The question is whether we need to make a special exemption in favour of nursery provision. Major problems arise. As my hon. Friend the Member for Tatton said, once we concede that nursery provision should be exempt from tax law, we have to ask what we should do about nannies. Are people who employ nannies entitled to set the cost against their income for tax purposes? Then we have to go even further and consider the costs of travelling to work.
The new clause is attractive, but it represents a departure from existing tax law, and I suspect that the ramifications are much wider than the House conceives them to be.

Mr. Tony Lloyd: I declare a retrospective interest. Not many years ago, my wife put our first child in a workplace nursery when she went back to work as a nurse at Manchester Royal infirmary, which runs the nursery to cater for the needs of nurses.
No one should believe that workplace nurseries have been provided only through the altruism of employers. Normally, nurseries have been seen by employers as necessary to encourage skilled personnel to return to work. My hon. Friend the Member for Barking (Ms. Richardson) referred to the tax and national insurance contributions that would be lost if we prevented such people from returning to work. We should also remember that we may be depriving the National Health Service of many skills if we bar employees from workplace nurseries.
The existence of nurseries in the NHS allows many women to return to work. I understand the logic of the arguments of the hon. Member for Grantham (Mr. Hogg), but I hope that he accepts that the major cause of the provision of workplace nurseries has been the fact that employers have had to provide them to attract employees. It is consistent to claim that the existence of those nurseries is part and parcel of the employment. For example, they are not comparable with company cars, which provide a personal benefit.
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There are no circumstances — if they exist, they are extremely marginal — in which an employee uses a workplace nursery to pursue other parts of his or her life or to gain extra leisure time. By definition, a workplace nursery provides a service during working hours. As my hon. Friend the Member for Leeds, Central (Mr. Fatchett) said, we are talking not about a perk, but about a service that is part and parcel of employment.
Many Conservative Members have a different concept from Labour Members about the role of women at work and of their right of access to most areas of employment. If the Financial Secretary tells us that the Government will start a massive building programme of nursery provision for children aged three to five, to bring us up even to the minimum standards of our European neighbours, that will be evidence of the Government's good faith and their attitude towards working women and we may not need the new clause. However, we do not expect to hear such an announcement. The Financial Secretary may delight us all, but it is not usual for him to delight the House.
Labour Members see the new clause as a way of increasing the independence of married women and increasing the opportunities of women with children to gain access to employment, which is desirable for the many reasons that have been mentioned, including the need and the desire or right to work.
I echo the sentiments of my hon. Friend the Member for Leeds, Central who pointed out that, throughout our debate, attendance on the alliance Benches has been poor. We have with us the Liberals' economic spokesman, the hon. Member for Colne Valley (Mr. Wainwright), and the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who sat with us, on occasions, in Committee.

It would be instructive to know where the Liberals stand on this issue. If the Brecon and Radnor by-election had been this Thursday instead of last Thursday, we would have seen a much greater response from Liberal Members trying to show their concern and compassion. We had a full attendance on the alliance Benches earlier, but when we get to serious matters affecting our constituents, particularly those in inner city areas where there is a high proportion of single parent families, no alliance voice is raised in their defence.

Mr. Fatchett: The SDP has not been here at all.

Mr. Lloyd: Perhaps that is because SDP Members have given up on the inner city areas. My constituency is split between two local authorities. One has a poor provision of state nursery places. Not unexpectedly, it is a Conservative authority. People in that part of my constituency need workplace nurseries if they are to have employment opportunities.
I should be happy for us to subsidise nurseries in the way that we subsidise our state schools. Nurseries are important in educational terms. Any parent who has had children at a nursery can see the difference that it makes. Nurseries are not a frivolous provision or a luxury for selfish parents. They are extremely valuable to children as well as being, in many cases, an economic necessity for the parents.
For that reason I congratulate my hon. Friend the Member for Hodge Hill on his new clause. I shall be more than interested to see how many Conservative Members support him in the Division Lobby. I suspect that while we hear plenty of talk from them, they will be noticeably absent from the Lobbies.

Mr. Archy Kirkwood: Having been thrust into the breach, and as it has been said that although I was present, I had not spoken, I point out that it is right and proper that the House should have the benefit of the alliance's views. I shall recommend my right hon. and hon. Friends to support the new clause.

Dr. McDonald: How many of them?

Mr. Kirkwood: I assure the hon. Lady that my right hon. and hon. Friends will be present for the vote.
I entirely endorse the way in which the hon. Member for Birmingham, Hodge Hill (Mr. Davis) introduced the clause.
There are two issues facing the House. There is the overwhelming social case for workplace nurseries. It has been deployed, and I shall not repeat all the arguments. They centred round the need to develop the position of women in society, especially those with young children. Within that group the plight of single mothers is particularly desperate. I have had constituency experience of that, as other hon. Members will have had. That, combined with the education case, makes it impossible to oppose the new clause.
However, I have reservations about the clause when it is considered from the purely logical taxation point of view. I have listened carefully to the arguments, and to the difficulties to which Conservative Members have referred. I confess that I am worried about extending the principle involved into taxation law. However, if the Government allow some of the other anomalies and tax perks to exist, and if the Inland Revenue does not attack and pursue them vigorously, I do not see why workplace nurseries should


be left out of the bag. Until the Government face up to the other worrying anomalies, we should not pass up this opportunity.

Mr. Douglas Hogg: Will the hon. Gentleman tell the House whether what he is enunciating is a matter of principle or of convenience? I understood him to say that, if the Government pursued other perks vigorously, the workplace provision places should be brought into the tax net.

Mr. Kirkwood: That is exactly what I am saying. [Interruption.] I have a clear idea on the subject. On the basis of the taxation principle — [Interruption.] The House asked me for my views, and while I am now giving those views, I am being criticised on all sides. I cannot win, but we in the alliance are used to being friendless.
The Government should look much more rigorously at some of the other tax perks. The former leader of the Liberal party, my noble Friend Lord Grimond, was keen on that, and made many suggestions about how a Government could eliminate such tax perks.

Mr. Richard Wainwright: Does my hon. Friend agree that it will be sheer humbug if the Financial Secretary tries to persuade the House that his Inland Revenue machine pursues perks rigorously and thoroughly wherever they are found and, therefore, it is important to tax this one, when everybody knows that the substantial use of secretaries, office equipment and so on for personal purposes—sometimes for good purposes—is never tracked down and successfully taxed? In those circumstances, why should the Financial Secretary single out this particular case?

Mr. Kirkwood: My hon. Friend makes the point for me, and much more succinctly.
There are other ways of stimulating and promoting the workplace nursery schemes and provisions, and we should seek to use them. There are probably more effective ways of putting substantial resources into that provision, and we could undoubtedly argue about them. I certainly support Opposition Members. Would the Financial Secretary consider studying the threshold limits, and double or index-link the £8,500 annual income at present laid down? That is only one vehicle that could be used.
On balance, taking a decision on the new clause, I shall recommend my right hon. and hon. Friends to support the new clause. That is a perfectly reasonable position to take.

Mr. John Maxton: Will the hon. Gentleman assure us that he is also speaking for his colleagues in the Social Democratic party although most of us accept that the Liberal party has some last vestiges of a social conscience left, we are not so sure about SDP Members.

Mr. Kirkwood: I can do that. The view that we take when the Division bells ring is what matters. I rose only to clarify the position, and it may be that I have not done that. I have sought to explain where we stand on this matter, and we shall certainly support the amendment.

Mr. Austin Mitchell: It was good to see the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) formulate policy on the wing, not only for the grown-up section, but for the nursery section of the alliance, which has not been represented here today. The fact that he can do that almost by telepathy shows how wonderful policy formulation is in the alliance.
The main interest during the debate has come from watching the party of special pleading on the Conservative Benches. Night after night, this year and in all preceding years, Conservative Members have sat in Committee on the Finance Bill finding every loophole, anomaly and change where there is money to be made, yet they are not prepared to plead on behalf of the special section of society about whom we are concerned today. Only one Conservative Member has spoken as the voice of conscience, and all credit to him. All the others have read party briefs, although with a deterioration in style and grammar, because they are on the hard road that must be hoed to reach the dizzy heights of Parliamentary Private Secretary.

Mr. Tim Smith: What?

Mr. Mitchell: Perhaps I should say the hard fields that must be tilled to reach those dizzy heights. Those fields must also be shovelled, and I am sure that the hon. Member for Beaconsfield (Mr. Smith) is good at that. While he shovels, he should consider the small number of people who have come on to the bridge while the ship sinks. It was interesting to see how few people were prepared to join in that scramble.
We have heard no effective arguments against new clause 1, only a series of nit-picking quibbles. For example, one hon. Member suggested that the new clause be widened to include child minders — as if he would vote for it if it did—and another suggested that it should be widened to include nannies, which would guarantee tumultuous votes from Conservative Members. The hon. Member for Slough (Mr. Watts) said that women should not go out to work. Although the country might be better run if that were true—Derbyshire, South might be better represented—the general proposition is not acceptable to the Opposition. We also heard the quibble about what would happen to mothers who do not get the allowance. Such petty arguments were levelled against a simple and correct principle.
There is an element of special pleading in our argument. There should be universal public nursery provision for all those who want it. The United Kingdom is badly provided for. We lag behind most of the rest of the advanced world. We have already been told that in France and Denmark between 20 and 30 per cent. of two-year-olds get some form of nursery education, and that in Belgium, France and the Netherlands 95 per cent. of four-year-olds get such provision. Only 56 per cent. get it here.
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The Conservative party cannot have it both ways. Either there should be universal public provision, on which our record is bad, or we should provide incentives such as new clause 1 proposes. Between 15 and 20 per cent. of families are single-parent families. They have special difficulties taking jobs. Therefore, they must be helped by the provision of such workplace nurseries. The proportion of single-parent families in some London boroughs is as high as 30 per cent. What do the Tories want them to do? Depend on benefit? Is it not right that they should stand on their own feet and go out to work? Is it not right that employers should help them in that by providing workplace nurseries? The country needs their skills, and work is better for them socially, psychologically and in every other respect.
It has been argued that only a few people are affected, but inflation has meant that far more people are affected.


Taxation now applies to somebody earning £6,000 a year if the costs of nursery education are added. Those costs are heavy, as workplace nurseries must have skilled staff and good premises — which are often in inner cities and therefore expensive—and be open long hours. The costs of the Kingsway nursery, which started the argument last year, are £345 a month. A person who uses nursery facilities is assessed on the costs as well as on the charge. If those costs are added to a salary of £6,000 it is obvious that many people are taken into tax. The people affected earn less than the average secretarial allowance in London—less than the salary that I hope Conservative Members pay their secretaries.
Provision of workplace nurseries is a matter of social responsibility as it is in line with other aspects of social provision which are not taxed, such as meals, car parks, which represent a substantial benefit in big cities, social and sports clubs and other facilities. Nursery provision differs from them only in so far as it relates to that section of the population which has the disadvantage of being parents, especially single parents. Enlightened employers will want to make nursery provision.
It is better that people should have access to workplace nurseries. They are probably more efficient for the parent than a neighbourhood nursery provided by the local authority, as no extra journeys are involved. Moreover, the parent is on hand in the rare event of problems, and therefore has greater peace of mind. It is not as though we are asking for some ancient provision to be changed. The change came last year with the decision by the Government and the Inland Revenue to make workplace nursery provision taxable. We argued last year where Which? got its information, as it said that for many years the benefit was not taxable. Irrespective of whether that magazine got its information from the Inland Revenue, as it is a popular guide to tax, benefits and allowances, the Revenue must have a responsibility to ensure that misleading information is corrected.
I have not come across a case of people being taxed in this respect before last year. It is Conservative Members who are voting for change. If they oppose new clause 1, they will impose taxation on those who benefit from workplace nurseries. They will be voting against nurseries, care for children and a small, but dependent, section of society which must be helped. They will be voting for male superiority. If new clause 1 is not carried, many nurseries will almost certainly close. People will not pay tax on the benefit because there will be no benefit.
I understand that tax was not collected until April this year and that people have not been coded accordingly until the Revenue finds out what the House decides. The Financial Secretary shakes his head. I shall be interested to hear his reply when he takes off the steel-rimmed glasses through which he has been glaring at us and puts on the mien of a reasonable man explaining reasonable facts to unreasonable people in order to defend an extremely unreasonable stance.
If Conservative Members vote down new clause 1, they will vote for the closure of a comparatively small number of workplace nurseries and unemployment for the people who work in them. If the nurseries remain open, Conservative Members will have voted for a substantial tax bill for those who benefit from them. All that

retrograde voting will be in the interest of being loyal to the whim of a Chancellor who clearly, after the last by-election, is temporary.

Mr. Moore: We have had a relatively lengthy but most enjoyable debate because it has been held at a rational hour. I am sure that the hon. Member for Birmingham, Hodge Hill (Mr. Davis) and I and all hon. Members who have participated in the debate will have preferred the time at which the debate has been held this year, remembering that last year the debate was held as the dawn came up.
Let me first answer the question of the hon. Member for Leeds, Central (Mr. Fatchett). Last year I mentioned that the theoretical potential costs involved were about £1 million. Although it is not an insignificant sum to the people involved, it is relatively minor. That is not the point at issue, and I entirely accept the hon. Gentleman's point.
I think that few issues have been clouded with such legitimate argument by those who honourably argue for the benefit of those intelligent employers who seek to offer employee nurseries, and argue in favour of social provision and the relative role of women in society. I see that as a clear set of arguments. I suggest that they have confused that very legitimate set of social goals with the question of the taxability of benefit, which is a very different question.
We have now had for a year or more, to put it no more strongly, the somewhat immoderate comments not of hon. Members but of certain sections of the press which cannot always get the facts right. Facts and principle are important, and I shall try to put the facts and principle on the record.
I thank particularly my hon. Friends the Members for Croydon, South (Sir W. Clark), for Beaconsfield (Mr. Smith), for Slough (Mr. Watts), for Tatton (Mr. Hamilton) and for Grantham (Mr. Hogg). If I may do so without being rude, I distinguish the contribution of my hon. Friend the Member for Grantham. He said in two minutes what I am afraid I shall take considerably longer to say. Because I have some respect for and enjoy the company of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) — I know that he is a reasonable, rational man — I hope that he will hold back a little before committing himself and the alliance to the way in which they will vote until he has had the benefit of hearing what I have to say. I am delighted to observe that the hon. Gentleman nods, so there is a chance that rational man will win over what I might call practical man.
It is essential in this issue to start by trying to get back to principle. I thought that there had been a degree of understanding across the Chamber over generations about the nature of employer abuse that occurred in previous centuries and into this century. My hon. Friend the Member for Tatton referred to the Truck Acts and to the way in which employers in the past had abused employees. I thought that there had been a historical debate which joined most responsible Members of Parliament. There was an attitude demonstrated by most hon. Members towards the nature of the principle by which choice should be given to individuals in the spending of their cash so that they were not trapped into the nature of the employment in a paternalistic fashion.
I respected the opening speech of the hon. Member for Hodge Hill, who argued the case reasonably. I shall try similarly to argue my case. I think that both sides of the House shared the distaste for what might be called


concealed remuneration, especially when this could be controlled by directors. I thought that there had been a historical acceptance by all parties that pay was preferable and that therefore in equity any benefits paid must bear tax as remuneration. I use not the word "perk", but the phrase "overall remuneration". I accept the point made in that regard by the hon. Member for Leeds, Central.
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I should not be reminding the Opposition of some of the great figures of Labour history, but the problem before 1948—there have been constant references to the 1948 statute, which is the fount of much of this discussion—was that it was very difficult to codify in the statute the attempt to carry those principles into practice. I take the Budget speech of that late great Socialist, Sir Stafford Cripps. I use my first quote to explain why Sir Stafford Cripps argued as he did in the economic statement:
Under the existing law, it falls upon the Inland Revenue authorities to prove that the payments are not necessary business expenses, and because of the difficulty of substantiating the case it often happens that these payments go untaxed. The majority opinion in industry condemns this practice".
He was then proposing the introduction of the 1948 statute which concerned much that is being debated tonight. He continued:
It is perfectly legitimate, of course, to deduct by way of expenses, a reasonable expenditure … but this right has been noticeably abused by extension to cover the ordinary living expenses of many persons, who are either directors or employees of the companies. This must be brought to an end.
I shall give some more updated examples of the Socialist principle. He went on to say:
there can be no doubt that many individuals are circumventing the law … I propose, therefore, with immediate effect, that all expenses allowances given to directors and others, and all disbursements for their benefit shall be assessed". —[Official Report, 6 April 1948; Vol. 449, c. 70.]
It is important for us to understand the basis of the debate. In fact, there are two debates—a tax debate and a social debate. I have also all the references to Glenvil Hall, the then Financial Secretary, who seemed to carry much of the burden for Sir Stafford Cripps in Committee. Socialist adherence to these principles had not changed. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon), a former Financial Secretary to the Treasury, who had to carry the burden of the 1976 issue, confirmed in Committee time and again essentially what I have to say. I accept that he was under pressure from the Conservatives at the time. He carried the principal arguments further forward. In discussions on the Finance Bill 1976, referring to some of my right hon. and hon. Friends, he said:
ideally all benefits in kind should be taxable … in equity all benefits should be taxed together with income. No one had much of a good word for fringe benefits.
Referring to the Conservative party, then in opposition, he continued:
the Opposition dislike fringe benefits and are prepared to do nothing about them because of the obvious problems, but the Government face those problems and have introduced this legislation which it is my job to defend and explain.
He said later:
the incidence of fringe benefits has been increasing in Britain over the past 20 years, or perhaps more, and the time has clearly come when fringe benefits need to be taxed in the same way as other emoluments.
I have many other similar quotes of what he said, correctly, in my judgment, as the Financial Secretary to the Treasury in those debates, which I have read with great admiration. He also said:

We believe that benefits in kind are part of the emoluments of a person. The Opposition and the Government share that view; the difference is that we have decided to do something about it."—[Official Report, 17 May 1976: Vol. 911, c. 1100–5.]
I am not in any way concealing the nature of the criticism that he was addressing to the Conservative party, which was then in opposition. However, he argued rightly about the principle.
Some may say and, indeed, have said — not necessarily tonight but in the past year — that it was never intended to cover this or that benefit. There was no universality about it. They were wrong then in their comments, they were wrong in relation to the debate in 1948 and they were wrong in 1976 with two exceptions on which I shall comment later. The definition was all-embracing then and continued to be confirmed in detailed debates in 1976.
On 15 July 1976 our late right hon. Friend Graham Page, a great man and a man of great courage and consistency of purpose, asked almost the questions we have been asking tonight of the right hon. Member for Ashton-under-Lyne. He referred to clause 56(2) of the Finance Bill which defined what was meant by benefits. He said:
The benefits to which this section applies are living or other accommodation, entertainment, domestic or other services.
He then said:
Then follow the words 'and other benefits and facilities of whatsoever nature'.
He then asked the right hon. Member for Ashton-under-Lyne:
Perhaps the Financial Secretary will tell the House what benefits will be included in the wide phrase 'other benefits and facilities of whatsoever nature'.
The right hon. Member for Ashton-under-Lyne said—I could not have said it better—in words that I am sure were given to him and that he no doubt supported:
It is not possible to categorise all the various kinds of benefits. That is why the words were used in the 1948 Act. They seem, at least in the limited way that that legislation provided, to have given the possibility of taxing the use of these benefits. It is only right that we should use those same useful words in the current legislation".
I am trying to take us back to the universality of the principle that was applied. Having reminded hon. Members of that, I can perhaps try to explain how the Revenue — it is relevant to this point, as all hon. Members who have had responsibility in office in the Treasury are aware — was to assess the value to the recipient of the non-cash emolument and why.
The basis for the taxable benefit was established in the Finance Act 1948 as
the cost to the employer of providing them.
That point was confirmed by the right hon. Member for Ashton-under-Lyne in the debate on 15 July 1976 when he said:
The basis of the assessment of the benefit is the cost to the company." — [Official Report, 15 July 1976; Vol. 915, c 1016–30.]
Why is that? Clearly, first, because the cost to the employer is equivalent to the extra cash remuneration the employer would otherwise pay. That ensures that payments in cash and kind are taxed equally. Secondly, it ensured that different benefits were taxed fairly in comparison with one another. Thirdly, to tax benefits at less than cost would mean treating payment in kind more favourably than payments in cash. Fourthly, taxing on


employer cost provides an objective test of value, removing the need for subjective judgments in that difficult benefit area.
I have tried to cover the principle, the coverage and the base upon which the costs are assessed.

Mr. Douglas Hogg: Is not the problem in taking the cost to the employer that there could be two sets of circumstances — the provision of nursery places for a large number of employees and the provision of nursery places for a small number of employees? The cost to the employer might vary depending upon the number of employees and the degree of service but the value to the employee does not change.

Mr. Moore: I accept that there is no perfect solution. In the Finance Act 1948 the attempt to assess the benefit on the basis of employer cost is not perfect. Hon. Members have said that, and I shall return to the point later when I deal with car benefits. There is a difficulty, but the method that I have described at least removes the subjectivity of the relative benefit. We have heard a great deal during the debate about the practice of assessing benefit. The method of assessment has led to much of the misunderstanding about the comprehensive nature of benefit taxation. I shall cover briefly the only main statutory exceptions to which reference has been made to ensure that we get the point on the record. The exceptions are company canteens, luncheon vouchers and coal miners' coal and its cash equivalent.
Canteens were included in the Finance Act 1948. I think that we discussed in the early hours last year the reasons for that. They related to the food shortages at the time. The luncheon voucher concession flowed from that. That matter was decided in 1949 and published in 1954. The coal miners' coal concession was extended to cover the cash equivalent in 1944. I do not have to explain why at that time coal miners were persuaded not to take coal. It was extended as a published extra-statutory concession to the higher paid, especially, by the right hon. Member for Ashton-under-Lyne in 1975. I recognise that both exceptions are anomalies within the statute, but they have been continued by successive Governments.
I shall consider the practical applications of the 1948 statute which, after considering the matter for a year or more, I think confuse people into believing that there are many other exceptions, while any thorough analysis—I accept that it is difficult to make a thorough analysis of the issue — shows that the principles and the concept were clearly established in 1948. This has been a useful debate in that context.
Four matters have added to the confusion. The first is the effective working of the de minimis rule. As my hon. Friend the Member for Tatton said, the assessable value of the benefit is usually de minimis. Examples of the practical working of the de minimis rule are employer-subsidised sport facilities and social clubs. There is no question but that they are taxable. Where they are not de minimis — as with an easily identifiable sports facility benefit such as membership of a golf club—a tax charge is clearly sought. Car parking places also come into that category.
My hon. Friend the Member for Tatton, correctly, took some time to explain that the difficulty was not the concept of taxing; it was the identification of Gost. Special rules

were therefore devised. Under those rules, the assessable value of a car parking space on the employer's land is taken to be its gross rateable value. Clearly that often turns out to be de minimis to the recipient, but it does not have to be. When a parking space is rented, the matter is straightforward, and the normal rules apply.
The second point — this issue has been raised only once tonight but was debated at considerable length last year — upon which some people confuse the problem of benefits is what I might call office facilities — paper, desks and even air conditioning. Those matters are excluded in so far as they are covered by section 62(3) of the Finance Act 1976, which exempts
Accommodation, supplies or services used by the employees solely in performing the duties of employment.
I do not have to go into the parallel that my hon. Friend the Member for Tatton drew between that and subsidised nurseries.
The third matter, which has created even more confusion—I think one or two of my hon. Friends may have fallen into a slight trap — is car flat rates. Those people who seek what they call a similar flat rate charge for employer-subsidised nurseries are confused. The problem, which was identified by the previous Labour Government, before 1977–78 was caused by the difficulty of charging for private usage by the then method of apportioning cost between business and private mileage, often on the basis of unverifiable mileage records. The Government sought to introduce scale charges. The concept of a full tax charge of 100 per cent. of the availability of the car for private usage is the aim. The Government decided to delay its introduction — I understand this fully — because of the problems of the car industry. However, the concept of scale charges was introduced to overcome the problem of identification. It was an intelligent and sensible administrative method.
The aim of the Labour Government was and of this Government is eventually to charge, in an administratively effective way, 100 per cent. of the private benefit. It would therefore seem pointless for my hon. Friends to seek to pursue that route for employer-subsidised nurseries, as it would merely achieve their present tax position.
The final practical feature of the charging mechanism for assessing the taxability of the benefit which has added to people's confusion is the £8,500 threshold. As a result of this limit many people have become liable to tax and this has caused anxiety to many hon. Members, especially my hon. Friend the Member for Croydon, South, who asked if that limit was out of date. I remind the House that the previous Financial Secretary to the Treasury, my right hon. Friend the present Secretary of State for Transport, clarified the Government's position on this in a parliamentary question in July 1983. He said:
The earnings threshold has become an anomaly. The previous Chancellor considered abolishing it because the same and correct treatment of benefits in kind will apply to all taxpayers. That should be our long-term aim". — [Official Report, 7 July 1983; Vol. 45, c. 392.]
It is clear that the threshold is an anomaly because some people who receive benefits are not taxed on them. Tax treatment should not depend on a person's remuneration, but it has been immeasurably difficult to abolish.
7.30 pm
It would seem that Governments have decided that sudden change is never right, but if we accept that it is anomaly, it is clearly right not to raise the threshold and


thus perpetuate the anomaly. The practical implications of that decision become clear in debates of this kind when many people who were not affected by the 1948 and 1976 legislation now have to come to terms with it.
Before considering workplace nurseries, which are the essential issue in the debate, it is important to stress the principles involved. In the four areas that I have already mentioned — the working of the de minimis rules, the implications of the "solely for employment" rules, the use of the car flat rate scale and the practical impact of an unchanging threshold — the basic principles are unchanged. Those principles were well expressed by the right hon. Member for Ashton-under-Lyne (Mr. Sheldon) who, as the Financial Secretary to the Treasury, said to a Committee of the whole House:
We believe that benefits in kind are part of the emoluments of a person. The Opposition and the Government share that view".—[Official Report, 17 May 1976; Vol. 911, c. 1105.]
I see no reason to change that fundamental acceptance of the principle that he enunciated so clearly.
I shall now deal with the taxability of the benefit of a workplace nursery in the context of that principle. I stress to the hon. Members for Barking (Ms. Richardson), for Greenwich (Mr. Barnett) and for Hodge Hill that I am not debating the value of a workplace nursery. All hon. Members are conscious of the need for employers who offer equal opportunities to provide those facilities. We are discussing the taxability of that benefit.
In giving a brief history of the issue I do not want to deal with it in the same detail as I did last year or to refute the comments already made. Suffice it to say that the benefits have been taxable since 1948, and the title of new clause 4 suggests that that is now accepted. However, there was considerable confusion. Some employers may have genuinely believed that the benefit was not taxable while others had paid tax on it. The Inland Revenue launched a special exercise in its tax offices to establish the facts. It was obvious that in many cases the benefit had not been reported to the Inland Revenue either by employers who provided it or by employees who received it. In the special circumstances, because of the confusion and because hardship would be caused by demanding payment for back years, the Inland Revenue decided not to collect tax for the period before 6 April 1985 and that tax already collected would be repaid. Indeed, I recorded that decision in a parliamentary answer earlier this year.
That is a brief history of the benefit as it affects the individuals involved, up to the beginning of this year. My explanations of the taxability of this benefit make it clear why we should not accept a new clause which seeks further to discriminate in favour of an already advantaged — I do not say privileged — minority in this area of employee benefits.

Mr. Shersby: Is there any difference in treatment for tax as between a woman who places her child in a local authority nursery and a woman who places her child in a workplace nursery?

Mr. Moore: There is no taxability on the benefits of a local authority nursery when places are extended to all members of the community. The taxability applies only where it is an employer-provided benefit.
I concur with my hon. Friend the Member for Croydon South that we should contrast the position of the people whom the new clause seeks to advantage with that of the majority of working mothers and mothers who may wish

to work. I thought that the debate was supposed to be about mothers who wanted to work, but the new clause seeks to advantage the few who are already in work and whose employer, unusually, provides a workplace nursery. That involves about 2,000 mothers who, if they were taxed on the £2,500 theoretical value at a basic rate of 30 per cent., would be receiving an additional benefit of £1,750 after tax. The position of that tiny group, whom the new clause seeks to benefit, must be contrasted with that of the majority — the 2·2 million mothers with children under five, of whom 600,000 are working mothers. If the benefit were offered not just to the 2,000 who already have a modicum of advantage in their workplace activities but to all those who have the potential to seek work—the 2·2 million mothers — and if relief were given at child minder rates of £30 per week, rather than the full creche cost, the cost would be £1·3 billion.

Mr. Campbell-Savours: Stop exaggerating.

Mr. Moore: Reliefs and benefits should have significance for all, not just for the few, although it may be hard for inegalitarian Socialists to understand the truth of real opportunity for all. If the same relief were offered to the 600,000 mothers at work—[Interruption.] It is a compliment to my argument that the Opposition are trying to drown it with infantile barracking. If the 600,000 working mothers with children under five were offered the same benefit, the cost would be £300 million, and if one had any kind of social conscience one would have to make that offer. I know that the hon. Member for Leeds, Central, who was intelligent and rational in his argument, would want to make that contrast, because he would not want to isolate a particular group for relief.
Ignoring the inequity of not offering similar relief to those not fortunate enough to have a creche at their place of employment and the socially divisive nature of the proposal, proponents of the new clause argue that it is the tax charge that is inhibiting the development of employer-subsidised nurseries. But the key problem must still be the cost to the employer. We have heard that the cost may reach more than £4,000 per nursery place. Even at an average cost of £2,500 per place, it is not surprising that employers, however well-intentioned, find it a daunting prospect.
We are discussing not workplace nurseries and their role in our working environment, but the new assumption by the Opposition that we must use the tax system to encourage private provision for certain social needs. I find it fascinating that they should have turned their backs on their previous belief in the need for the state to provide. But more important, I wonder whether they have thought through the dilemma that they would open up if they went down that route, of which my hon. Friend the Member for Grantham started to remind us. Once they break fundamentally with the concept of the 1948 legislation, what other social provisions can be legitimately pressed via tax reliefs through the private sector? I know that many of my hon. Friends would be pressing quickly and legitimately for private medical insurance, private education and many other similar services.
Here we have a classic lesson for the Opposition. For what I know are the best of motives, they have a legitimate desire to support employers who provide nursery facilities, but they slipped into a position that can only be described as elitist. Having failed to think through the implications


of their position on the issue, the Opposition, in their new clause, would, first, deny their past principled position on the issues surrounding perks and pay; secondly, they would argue for tax relief for the private provision of a benefit; and, thirdly, they would pursue the advantage of a tiny minority while ignoring the interests of the vast majority. The purpose of the clause is clear — to place the few in a position of further advantage through our taxation system at the cost, no matter how small, of the majority. I urge the House to reject that inegalitarian proposal.

Mr. Terry Davis: As the Financial Secretary said, we have had a most interesting debate, in which we have ranged from the practical aspects of the proposal to the more philosophical aspects of fiscal policy.
The hon. Member for Beaconsfield (Mr. Smith) delivered his usual pinprick when he complained that the Opposition had not chosen unemployment for a debate in prime time. I draw the hon. Gentleman's attention to the fact that we tabled a new clause that referred specifically to unemployment, and would have been a peg for a debate on that issue. However, it was not selected because it was not in order on the Finance Bill. A debate on workplace nurseries is in order. I must tell the hon. Gentleman that it is also a debate on unemployment.
As my hon. Friends and I have constantly reminded the House, we are discussing whether people, mainly women and particularly single parents, are encouraged to work or discouraged from working so that they go back to social security benefits. The hon. Member for Slough (Mr. Watts) echoed the views of the hon. Member for Beaconsfield. I found their attitude distasteful. They displayed a contempt for women and ignorance of the difficulties experienced by working women, and that was a revelation to Opposition Members. That attitude is totally different from that of the Financial Secretary. At least he made it clear that he thought that workplace nurseries should be encouraged. He was at pains to distance himself from the views of his Back Benchers.
My hon. Friends the Members for Stretford (Mr. Lloyd) and for Leeds, Central (Mr. Fatchett) put their fingers right on the point when they said that the debate has shown to a marked degree the difference in attitude between the Labour party and the Conservative party towards women and their role in society. But, to be fair, some Conservative Back Benchers expressed views similar to Opposition Members' views. The hon. Members for Banbury (Mr. Baldry) and for Nuneaton (Mr. Stevens) made it clear that they opposed the tax as much as did Labour Members.
The hon. Member for Nuneaton put it well when he said that workplace nurseries give women a choice of whether to work or not. Although I prefer the Labour party approach of exempting workplace nurseries from tax, we would have supported his new clause on the basis that a half loaf is better than nothing at all. I hope that he will support us in the Lobby, as his new clause was out of order. Conservatives who agree about the inequity of taxing workplace nurseries must choose between the Government's attitude and the Opposition's views.
The Financial Secretary wants to distinguish between encouraging a socially desirable provision and taxing the benefit. I make it absolutely clear that the Labour party

would much prefer nurseries to be provided by local authorities. That is our ultimate aim. In the meantime we shall deal with the world as it is. We are not afraid to abolish the tax that has been introduced as a recent change in practice, in an attempt to encourage employers and to support women and parents who, in order to be able to work, need workplace nurseries for their children. The hon. Member for Grantham (Mr. Hogg)—

Mr. Eggar: Will the hon. Gentleman give way?

Mr. Shersby: Will the hon. Gentleman give way?

Mr. Davis: Neither hon. Member has sat through the debate as I have done, so I shall not give way.
The hon. Member for Grantham said that it was not consistent with present tax law to exempt workplace nurseries, because the provision of those nurseries is not necessary to enable people to work. That was a fair point. However, it is a specific exemption in tax law to exempt workplace canteens, and they are not necessary to enable people to work. Many employers do not provide office or factory canteens, but those benefits are specifically exempt. We are seeking to add another exemption.
The Financial Secretary referred to the Truck Acts, saying that cash is a better form of remuneration than benefits or payment in kind. I agree with him on that principle. However, workplace nurseries are not a form of remuneration. They facilitate people obtaining remuneration because they enable many people to work who otherwise could not do so. They are also a cheaper way of providing that facility than paying everyone a larger sum to enable those who have children to pay child minders.
The Financial Secretary expressed the distaste of us all for the Truck Acts and such payments. His historical researches have extended back to 1948. I do not dissent from his quotation from the late Sir Stafford Cripps, nor do I dissent from the quotation from my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon), but the hon. Gentleman might have had the courage to tell the House that, when my right hon. Friend expressed those views, the Conservative party voted against them. We know that it voted against them in 1976 because Conservative Members were arguing for tax-free perks for the well off. Workplace nurseries are not perks. They are not a fringe benefit any more than any other provision by an employer to enable an employee to work. We see a workplace nursery as being on all fours with a workplace canteen. We see it as an office facility in the way that it was defined by the Financial Secretary.
We believe that workplace nurseries are important for children, as my hon. Friends the Members for Greenwich (Mr. Barnett) and for Denton and Reddish (Mr. Bennett) told the House. They are as important for children as for mothers. When Conservative Members accuse us of setting one mother against another, they are really short of arguments. When they talk about employees who do not have access to workplace nurseries and similar facilities, and argue that there would need to be relief for child minding fees, let me remind them and the Financial Secretary that people who take their children to workplace nurseries are, as a general rule, and in every case that I have examined, paying for those facilities. It is not a free provision by the employer; people make a contribution to


the costs of a workplace nursery. Out of their income, after tax, they are paying as much as others are paying for child minders.
The point is that a workplace nursery is a better provision than a child minder. The hon. Member for Tatton (Mr. Hamilton) said that there had been no change in practice, and referred to a speech by the Financial Secretary a year ago. He was less than specific about which passage in the Financial Secretary's speech dealt with that point. I must tell the hon. Gentleman that an assertion is not an argument. His argument was weakened by his statement that that tax has not been collected because it has not been drawn to the attention of the Inland Revenue. I remind him that the Inland Revenue is giving the advice that the provision of workplace nurseries is not a taxable benefit. The Financial Secretary said that there was confusion. It was the advice of the Inland Revenue that caused that confusion. As my hon. Friend the Member for Great Grimsby (Mr. Mitchell) said, the Government admitted that, by agreeing to cancel demands for back tax.
The hon. Member for Croydon, South (Sir W. Clark) said that it has been the policy of successive Governments to tax any perk. He was as wrong about that as about the details that he gave on the taxation of company cars.
It is not, and never has been, a policy of the Labour party to tax canteens. It will not be a policy of the Labour party to tax workplace nurseries. When the hon. Members for Uxbridge (Mr. Shersby) and for Croydon, South (Sir W. Clark) press the Financial Secretary to raise the threshold from £8,500, they are on a loser. The Financial Secretary made it clear tonight that the Government's policy is to abolish the threshold, not to raise it. That will mean that even more people on even lower wages will be taxed. Some Conservative Members say that the provision benefits a privileged elite who enjoy £4,000 a year benefit. The hon. Member for Beaconsfield (Mr. Smith) gave an example of sloppy accounting, because he had not listened to the fact that people who send their children to workplace nurseries make a contribution. The benefit is not £4,000, because their contribution must be deducted.

Mr. Tim Smith: Would the Labour party wish the £8,500 limit to increase or to wither on the vine?

Mr. Davis: We shall certainly examine that matter, but in the meantime we would leave it where it is. The limit was introduced by a Labour Government and we would certainly not raise the threshold. I cannot tell the House whether we would go as far as the Financial Secretary and abolish it, but it is a fair point and one which we shall discuss in next year's Finance Bill. However, I shall not be diverted from the point.
The Financial Secretary admits, unlike some of his hon. Friends, that the result of the Government's attitude is that parents with children at workplace nurseries are required to pay, on average, £750 a year to the Inland Revenue. They are asked to pay £15 a week out of their income after tax. Conservative Members call them an elite minority, but they are cleaners, domestic workers, secretaries, carpenters and labourers, as well as nurses and health visitors. Yet the Conservative party calls them an elite minority and the privileged few.
The introduction of the tax will mean that workplace nurseries will become a benefit enjoyed only by the elite because they will be the only people who could afford to pay the tax and keep their children at workplace nurseries.
Under pressure, the Financial Secretary told us that the new clause would cost only £1 million. He fairly described that as relatively minor. In Standing Committee, we were told that the Government had given away £5 million as a result of the abolition of stamp duty on gifts between living people. They described that as a low yield. When they introduced a clause which gave away £2 million to oil companies, they described that as a slight amount. When they increased the limit on business entertaining expenses, which would cost less than £1 million, they called it a modest step and a negligible amount.
The Labour party is asking tonight for a modest step and a negligible amount that will benefit 2,000 people. How many people will benefit from the abolition of development land tax, costing £50 million? I should be surprised if that benefited 2,000 people. Thanks to the efforts of my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Fisher), we have a list of 209 extra concessions costing between £60 million and £100 million, which will benefit only a few people.
The Financial Secretary took some time to explain the philosophical reasoning behind his opposition to the new clause. The difference between us is that he is bound hand and foot by fiscal doctrine. Indeed, he elevates doctrine to the level of dogma. The Labour party is prepared to distinguish between the perks of the wealthy and benefits to those who have the greatest difficulty in making ends meet. This is not, as the Financial Secretary claims, a new clause which supports employers. It supports employees. I promise the Financial Secretary that, whatever happens in the Division Lobby tonight, this campaign will continue. We will continue until either the Government see sense or we replace them with a Government who care for parents and children.

Question put, That the clause be read a Second time:

The House divided: Ayes 188, Noes 251.

Division No. 265]
[7.54 pm


AYES


Abse, Leo
Clarke, Thomas


Alton, David
Clay, Robert


Ashdown, Paddy
Cocks, Rt Hon M. (Bristol S.)


Ashton, Joe
Cohen, Harry


Atkinson, N. (Tottenham)
Coleman, Donald


Bagier, Gordon A. T.
Concannon, Rt Hon J. D


Baldry, Tony
Cook, Frank (Stockton North)


Barnett, Guy
Cook, Robin F. (Livingston)


Barron, Kevin
Corbett, Robin


Beckett, Mrs Margaret
Corbyn, Jeremy


Beith, A. J.
Cowans, Harry


Bell, Stuart
Cox, Thomas (Tooting)


Benn, Tony
Craigen, J. M.


Bennett, A. (Dent'n &amp; Red'sh)
Davis, Terry (B'ham, H'ge H'l)


Bermingham, Gerald
Deakins, Eric


Bidwell, Sydney
Dewar, Donald


Blair, Anthony
Dixon, Donald


Boothroyd, Miss Betty
Dobson, Frank


Boyes, Roland
Dormand, Jack


Bray, Dr Jeremy
Dubs, Alfred


Brown, Gordon (D'f'mline E)
Dunwoody, Hon Mrs G.


Brown, Hugh D. (Provan)
Eadie, Alex


Brown, N. (N'c'tle-u-Tyne E)
Eastham, Ken


Brown, R. (N'c'tle-u-Tyne N)
Edwards, Bob (W'h'mpt'n SE)


Brown, Ron (E'burgh, Leith)
Ellis, Raymond


Bruce, Malcolm
Evans, John (St. Helens N)


Buchan, Norman
Ewing, Harry


Caborn, Richard
Fatchett, Derek


Callaghan, Jim (Heyw'd &amp; M)
Faulds, Andrew


Campbell-Savours, Dale
Field, Frank (Birkenhead)


Carlile, Alexander (Montg'y)
Fields, T. (L'pool Broad Gn)


Carter-Jones, Lewis
Fisher, Mark


Clark, Dr David (S Shields)
Flannery, Martin






Forrester, John
Mitchell, Austin (G't Grimsby)


Foster, Derek
Morris, Rt Hon J. (Aberavon)


Fraser, J. (Norwood)
Morris, M. (N'hampton, S)


Freeson, Rt Hon Reginald
Oakes, Rt Hon Gordon


Garrett, W. E.
O'Brien, William


George, Bruce
O'Neill, Martin


Gilbert, Rt Hon Dr John
Orme, Rt Hon Stanley


Godman, Dr Norman
Owen, Rt Hon Dr David


Golding, John
Park, George


Gould, Bryan
Parry, Robert


Gourlay, Harry
Patchett, Terry


Hamilton, James (M'well N)
Pavitt, Laurie


Hamilton, W. W. (Central Fife)
Pendry, Tom


Hancock, Mr. Michael
Penhaligon, David


Hardy, Peter
Pike, Peter


Harman, Ms Harriet
Powell, Rt Hon J. E. (S Down)


Harrison, Rt Hon Walter
Powell, Raymond (Ogmore)


Hart, Rt Hon Dame Judith
Prescott, John


Hattersley, Rt Hon Roy
Radice, Giles


Haynes, Frank
Randall, Stuart


Healey, Rt Hon Denis
Redmond, M.


Heffer, Eric S.
Rees, Rt Hon M. (Leeds S)


Hogg, N. (C'nauld &amp; Kilsyth)
Richardson, Ms Jo


Holland, Stuart (Vauxhall)
Roberts, Allan (Bootle)


Home Robertson, John
Roberts, Ernest (Hackney N)


Howells, Geraint
Robertson, George


Hughes, Dr. Mark (Durham)
Robinson, G. (Coventry NW)


Hughes, Robert (Aberdeen N)
Rogers, Allan


Hughes, Roy (Newport East)
Rooker, J. W.


Janner, Hon Greville
Ross, Stephen (Isle of Wight)


John, Brynmor
Ross, Wm. (Londonderry)


Jones, Barry (Alyn &amp; Deeside)
Sedgemore, Brian


Kaufman, Rt Hon Gerald
Sheerman, Barry


Kennedy, Charles
Sheldon, Rt Hon R.


Kilroy-Silk, Robert
Short, Ms Clare (Ladywood)


Kirkwood, Archy
Short, Mrs R.(W'hampt'n NE)


Lambie, David
Silkin, Rt Hon J.


Leighton, Ronald
Skinner, Dennis


Lewis, Ron (Carlisle)
Smith, C.(Isl'ton S &amp; F'bury)


Lewis, Terence (Worsley)
Smyth, Rev W. M. (Belfast S)


Litherland, Robert
Snape, Peter


Lloyd, Tony (Stretford)
Soley, Clive


Lofthouse, Geoffrey
Stewart, Rt Hon D. (W Isles)


Livsey, Richard
Stott, Roger


McCartney, Hugh
Strang, Gavin


McDonald, Dr Oonagh
Straw, Jack


McKay, Allen (Penistone)
Thompson, J. (Wansbeck)


McKelvey, William
Thorne, Stan (Preston)


MacKenzie, Rt Hon Gregor
Tinn, James


Maclennan, Robert
Torney, Tom


McNamara, Kevin
Wainwright, R.


McTaggart, Robert
Wareing, Robert


McWilliam, John
Weetch, Ken


Madden, Max
White, James


Marek, Dr John
Wilson, Gordon


Marshall, David (Shettleston)
Winnick, David


Martin, Michael
Woodall, Alec


Mason, Rt Hon Roy
Wrigglesworth, Ian


Maxton, John
Young, David (Bolton SE)


Meacher, Michael



Meadowcroft, Michael
Tellers for the Ayes:


Michie, William
Mr. Lawrence Cunliffe and


Millan, Rt Hon Bruce
Mr. Sean Hughes.


NOES


Adley, Robert
Beaumont-Dark, Anthony


Aitken, Jonathan
Bellingham, Henry


Alexander, Richard
Bendall, Vivian


Amery, Rt Hon Julian
Bevan, David Gilroy


Amess, David
Biffen, Rt Hon John


Ancram, Michael
Biggs-Davison, Sir John


Ashby, David
Blaker, Rt Hon Sir Peter


Aspinwall, Jack
Body, Richard


Atkins, Robert (South Ribble)
Bonsor, Sir Nicholas


Atkinson, David (B'm'th E)
Boscawen, Hon Robert


Baker, Rt Hon K. (Mole Vall'y)
Bottomley, Peter


Baker, Nicholas (N Dorset)
Bottomley, Mrs Virginia


Banks, Robert (Harrogate)
Bowden, A. (Brighton K'to'n)


Batiste, Spencer
Bowden, Gerald (Dulwich)





Boyson, Dr Rhodes
Howell, Rt Hon D. (G'ldford)


Braine, Rt Hon Sir Bernard
Jenkin, Rt Hon Patrick


Brandon-Bravo, Martin
King, Roger (B'ham N'field)


Bright, Graham
Knight, Greg (Derby N)


Brinton, Tim
Knowles, Michael


Brown, M. (Brigg &amp; Cl'thpes)
Lang, Ian


Browne, John
Latham, Michael


Bruinvels, Peter
Lawler, Geoffrey


Bryan, Sir Paul
Lawson, Rt Hon Nigel


Burt, Alistair
Lee, John (Pendle)


Butcher, John
Lennox-Boyd, Hon Mark


Butterfill, John
Lewis, Sir Kenneth (Stamf'd)


Carlisle, John (N Luton)
Lightbown, David


Carlisle, Kenneth (Lincoln)
Lilley, Peter


Carlisle, Rt Hon M. (W'ton S)
Lloyd, Ian (Havant)


Carttiss, Michael
Lord, Michael


Cash, William
Luce, Richard


Chalker, Mrs Lynda
Lyell, Nicholas


Chapman, Sydney
McCrindle, Robert


Churchill, W. S.
McCurley, Mrs Anna


Clark, Hon A. (Plym'th S'n)
Macfarlane, Neil


Clark, Dr Michael (Rochford)
MacKay, Andrew (Berkshire)


Clark, Sir W. (Croydon S)
MacKay, John (Argyll &amp; Bute)


Clarke, Rt Hon K. (Rushcliffe)
Maclean, David John


Clegg, Sir Walter
McNair-Wilson, P. (New F'st)


Cockeram, Eric
McQuarrie, Albert


Colvin, Michael
Madel, David


Coombs, Simon
Major, John


Cope, John
Malins, Humfrey


Corrie, John
Malone, Gerald


Couchman, James
Maples, John


Cranborne, Viscount
Marland, Paul


Currie, Mrs Edwina
Marlow, Antony


Dickens, Geoffrey
Marshall, Michael (Arundel)


Dicks, Terry
Mates, Michael


Dorrell, Stephen
Mather, Carol


Douglas-Hamilton, Lord J.
Maude, Hon Francis


Dover, Den
Mawhinney, Dr Brian


du Cann, Rt Hon Sir Edward
Maxwell-Hyslop, Robin


Dunn, Robert
Mellor, David


Durant, Tony
Merchant, Piers


Dykes, Hugh
Miller, Hal (B'grove)


Eggar, Tim
Mills, Iain (Meriden)


Emery, Sir Peter
Mills, Sir Peter (West Devon)


Evennett, David
Miscampbell, Norman


Fallon, Michael
Moate, Roger


Farr, Sir John
Montgomery, Sir Fergus


Favell, Anthony
Moore, John


Finsberg, Sir Geoffrey
Moynihan, Hon C.


Fletcher, Alexander
Mudd, David


Forman, Nigel
Murphy, Christopher


Forsyth, Michael (Stirling)
Neale, Gerrard


Forth, Eric
Needham, Richard


Fowler, Rt Hon Norman
Nelson, Anthony


Fraser, Peter (Angus East)
Neubert, Michael


Fry, Peter
Newton, Tony


Gale, Roger
Nicholls, Patrick


Gilmour, Rt Hon Sir Ian
Osborn, Sir John


Gorst, John
Ottaway, Richard


Gow, Ian
Page, Sir John (Harrow W)


Gower, Sir Raymond
Page, Richard (Herts SW)


Grant, Sir Anthony
Parris, Matthew


Gregory, Conal
Patten, Christopher (Bath)


Griffiths, Sir Eldon
Patten, J. (Oxf W &amp; Abdgn)


Grist, Ian
Pattie, Geoffrey


Gummer, John Selwyn
Pawsey, James


Hamilton, Neil (Tatton)
Percival, Rt Hon Sir Ian


Hampson, Dr Keith
Portillo, Michael


Hargreaves, Kenneth
Powell, William (Corby)


Harris, David
Powley, John


Hayhoe, Rt Hon Barney
Prentice, Rt Hon Reg


Heathcoat-Amory, David
Price, Sir David


Heddle, John
Raison, Rt Hon Timothy


Henderson, Barry
Rathbone, Tim


Higgins, Rt Hon Terence L.
Rees, Rt Hon Peter (Dover)


Hill, James
Rhodes James, Robert


Hind, Kenneth
Rhys Williams, Sir Brandon


Hirst, Michael
Ridley, Rt Hon Nicholas


Hogg, Hon Douglas (Gr'th'm)
Ridsdale, Sir Julian


Howard, Michael
Rifkind, Malcolm






Roberts, Wyn (Conwy)
Tapsell, Sir Peter


Robinson, Mark (N'port W)
Taylor, John (Solihull)


Roe, Mrs Marion
Taylor, Teddy (S'end E)


Rossi, Sir Hugh
Temple-Morris, Peter


Rost, Peter
Thompson, Donald (Calder V)


Rowe, Andrew
Thompson, Patrick (N'ich N)


Rumbold, Mrs Angela
Thorne, Neil (Ilford S)


Ryder, Richard
Thornton, Malcolm


Sackville, Hon Thomas
Thurnham, Peter


Sainsbury, Hon Timothy
Townend, John (Bridlington)


Sayeed, Jonathan
Tracey, Richard


Shaw, Giles (Pudsey)
Trotter, Neville


Shaw, Sir Michael (Scarb')
van Straubenzee, Sir W.


Shelton, William (Streatham)
Vaughan, Sir Gerard


Shepherd, Colin (Hereford)
Walden, George


Shepherd, Richard (Aldridge)
Walker, Bill (T'side N)


Shersby, Michael
Waller, Gary


Silvester, Fred
Walters, Dennis


Sims. Roger
Ward, John


Skeet, T. H. H.
Wardle, C. (Bexhill)


Smith, Tim (Beaconsfield)
Watson, John


Speed, Keith
Watts, John


Spencer, Derek
Wells, Sir John (Maidstone)


Spicer, Jim (W Dorset)
Wheeler, John


Squire, Robin
Wolfson, Mark


Stanbrook, Ivor
Wood, Timothy


Stanley, John
Yeo, Tim


Steen, Anthony
Young, Sir George (Acton)


Stern, Michael
Younger, Rt Hon George


Stewart, Allan (Eastwood)



Stewart, Andrew (Sherwood)
Tellers for the Noes:


Stewart, Ian (N Hertf'dshire)
Mr. Tristan Garel-Jones and


Stokes, John
Mr. Archie Hamilton.


Stradling Thomas, J.

Question accordingly negatived.

New Clause 2

FRIENDLY SOCIETIES

'(1) In so far as the profits of a registered friendly society or separately registered branch society from life or endowment business relate to contracts made after the date of coming into force of this Act, the reference in subsection (2) of section 332 of the Taxes Act (business exempt from income tax and corporation tax) shall have effect as if the words "for societies or branches with aggregate annual premium income of £120,000 or more, and £2,400 and £500 respectively for societies or branches with aggregate annual premium income below £120,000" were inserted after "£156", and as if in subsection (3) of the said section 332 the words "£2,400 and £500" were inserted after "£156".

(2) In section 64 of the Friendly Societies Act 1974 (as amended by section 39 above) in paragraph (a) for "£750" there shall be substituted "£2,400" and in paragraph (b) for "£156" there shall be substituted "£500".'.—[Dr. McDonald.]

Brought up and read the First time.

Dr. McDonald: I beg to move, That the clause be read a Second time.
The new clause seeks to increase the limits for tax-exempt business for small friendly societies from £750 to £2,400 for the sum assured and from £156 per annum to £500 per annum for annuities. This applies only to the small friendly societies — the pre-1966 societies. We understand why the Government want to deal in a different way with the post-1966 societies. It was necessary to change the limit in that case to prevent abuse.
The Government's treatment of the small friendly societies needs explanation. The Economic Secretary has spoken about this matter in Committee and in correspondence with the liaison committee of the friendly societies. It is clear that he still has not grasped the nature of these friendly societies. They are essentially local social

organisations transacting insurance on an amateur do-it-yourself basis. Even the existence of such an amateur approach to insurance obviously frightens the Economic Secretary, judging by what he said in Committee. In spite of the fact that these friendly societies operate on a voluntary basis, they have been doing so to the satisfaction of their members for a long time. They do not operate on a commercial scale and have no marketing organisation competing for business. They do not advertise — their names do not appear on television or in magazines and newspapers.
The friendly societies developed to provide working class people, especially in the pre-welfare state days, with a means of providing themselves with sickness, unemployment, death or widows' benefits and of paying for funerals and preventing people from having to face a pauper's grave. Yet their existence, even in the welfare state, is still necessary. Perhaps they have become more necessary during the past few years as the welfare state has been nibbled away by the Government. Their books are kept by a part-time secretary who is not an insurance expert and there are no funds to buy commmercial expertise. The additional book-keeping necessary if such societies were to enter the taxable sector and the complexities of tax computations for mutual assurance funds would be way beyond the knowledge and competence of most secretaries of the societies.
The Economic Secretary has admitted that the direct cost to the Revenue of tax exemption for existing small societies is probably not large. He might like to put a figure on that, but it is probably only a few thousand pounds in a financial year. Now that my hon. Friends and I are coming to the end of yet another Finance Bill, we are only too well aware of the way in which the odd £1 million or £5 million is given away in tax concessions and tax relief to those who do not need it. We are asking for a small concession to friendly societies, composed as they largely are of working-class people, on a self-help basis.
On the scale on which the societies operate, it is not possible to be economic in any commercial sense, because members are performing services for the societies voluntarily. If further evidence were needed that it is not practical for small societies to enter the taxable sector, between 1966 and 1975, and since 1984, that option has been open to them and the tax-exempt limits have become increasingly onerous in real terms, but no branch society and hardly any small centralised society has felt able to enter that area.
The Economic Secretary says constantly that if the friendly societies are to survive they should do that, but they are not in a position to do so. Their membership does not want them to do so. They prefer to operate in their own way and it is such a small sector that I think that the Economic Secretary should reconsider the views that he has expressed in the past and allow them to continue in existence. It is true that they may gradually fade away but there is no need for the Economic Secretary to hasten their demise.
The Opposition have selected a limit of £2,400. This, as the Economic Secretary knows, is the present limit for trade unions. The limit was the same for both societies and the unions until 1982. In real terms, the post-war limit of £500 would now be some £5,000, which makes the proposal that we have tabled a very modest one. Of course, we have in mind the limit of £2,000 which applied to those societies until Budget day in 1984. That limit was


introduced by the Government in 1980 when they doubled the limit from £1,000 to £2,000. Apart from anything else, I think that the friendly societies are confused about the treatment that they have received from the Government over the whole period of their office. At one stage the limit was raised and now it has been drastically reduced. It has been reduced to such an extent that it makes it virtually impossible for the societies to continue in the way in which they have for so many years.

Mr. Campbell-Savours: Might it be that some of the large insurance companies which contribute substantially to Conservative party funds have been putting pressure on the Government?

Dr. McDonald: I certainly think that that is a possibility. We should bear in mind the Government's behaviour towards insurance societies. To take another example of that, the proposed abolition of SERPS will put enormous amounts of business in the way of the life assurance companies. If they are putting pressure on the Government to eliminate the friendly societies, that is greedy. Some estimates put future business by 1990 arising from the phasing out of SERPS at £3 billion. If, with that bonanza to come — should the Government stay in office after the next general election — the insurance companies are still worried about the friendly societies, their greed is obviously beyond all bounds.
8.15 pm
We propose a limit of £120,000 per annum for the total contribution income for societies that are allowed to operate higher limits. That is 50 times the sum assured limit. Societies with that level of total contribution income should have a full-time employed secretary who is familiar with taxation and properly trained. The friendly societies are asking that they should no longer have to depend on entirely voluntary assistance. They would like to be able to employ at least one full-time secretary as that would enable them to provide a better service for their members.
The new clause follows the approach of the EEC's life assurance directive, which will presumably become applicable in all member states at some time in future. The EEC like the Government and the rest of us, wants to ensure that commercial insurers, including friendly societies of any size, have adequate solvency margins. However, the EEC was more sensitive and sensible than the Government in introducing a directive. It did not want to put small friendly societies out of existence by requiring impossible margins. It has laid down a margin of £300,000. It would be a good thing if the Government were to consider such friendly societies in the same way as the EEC. As the Economic Secretary and other hon. Members know, it is not often that I have a good word to say for the EEC. On this occasion it seems to be justified to speak favourably of it.
It is odd that it should be the EEC that is more considerate than the Government when friendly societies have for more than 100 years been part of our working-class tradition. The Government are trampling over all of that.
I wish to emphasise the Government's failure to understand what friendly societies are like by referring to one or two extracts from a letter from the Independent Order of Oddfellows Manchester Unity Friendly Society.

The letter was sent to the Chancellor of the Exchequer in February. I think that it sets out the ethos of the societies. Part of the letter reads:
Successive governments have realised that well organised branches of Order Friendly Societies operate for the good of the community as a whole, combining a variety of provident operations with a sense of social duty which is unique. It adds to the country's social security structure a background of caring organisations, for the sick and dying, the widow the orphan and the distressed, which the social security constitution by its very nature finds it difficult to emulate".
The letter continues:
thrift is a virtue to be encouraged among what used to be called the artisan and working class in particular, and appreciating our apolitical work have understood that caring activities and encouragement of thrift in extremely difficult circumstances need practical financial encouragement which developed with certain tax privileges.
Another paragraph reads:
We find it difficult to understand why this government with its commitment to thrift and appeals to the nation to become a caring society should deal such a harsh blow to those who work voluntarily for the good of their fellow men in this field.
Some of the words that I have quoted from this letter might well fall from the lips of the Prime Minister as she encourages thrift and voluntary self-help in our society. In particular, she would like those virtues to be encouraged among the artisan and working classes. Although the Prime Minister would like such virtues to be encouraged, she makes sure that in every possible way her Government do nothing to encourage those who attempt to practise them in the way that they have always been practised in the organisations and societies to which they and their predecessors have belonged for such a long period.
I compare this with the reply of the Economic Secretary to the secretary of the friendly societies liaison committee in a letter dated 29 May 1985. Given the way in which the Manchester Unity Friendly Society describes itself and given all that I have already said, although the Economic Secretary says that he understands the point of view of friendly societies, he simply has not got a clue. First, he kowtows in their direction and then he refers to the need to preserve tax neutrality. Tax neutrality and fiscal neutrality in investment matters are something of a joke. In his 1985 Budget the Chancellor of the Exchequer ran scared from taxing pensions and from taxing contributions paid by both the employer and the employee. He wanted to do that because he believes in fiscal neutrality, but he did not have the courage to do so. Therefore it is nonsense to defend the treatment of friendly societies in this way.
The Economic Secretary also said in his letter that the proposal would create a dividing line between societies. Yes, it would. The Opposition appreciate that point. We are anxious to ensure that a dividing line of that kind would not be open to abuse, but when the European Community's life directive eventually applies, the Government will have to do this. Therefore they ought to accept that implication now and allow the friendly societies to flourish.
Finally, the Economic Secretary says that, if the tax regime we are asking for came into existence, these small organisations would have
an investment product to market to the general public which was unique in its tax advantages.
There is no way in which friendly societies could market such a product. They are not in that kind of business. They are more or less democratically organised societies which act in a way that mutually benefits their members and provides them with insurance and various other benefits that are not covered by this measure. The societies are


small and limited in their scope. They do not provide the high salesmanship that is required to market the kind of attractive investment product which the Economic Secretary thinks exists; nor are they in a position to compete with the large and well-financed companies that already operate in this market.
Despite his sympathetic noises, the Economic Secretary shows time and again that he does not understand the nature of friendly societies. We are asking for no more than a small concession that would allow them to continue to look after their working-class membership in the way that they have looked after them for many years.

Mr. Ian Wrigglesworth: The hon. Member for Thurrock (Dr. McDonald) has most exhaustively presented the case for this new clause, and I rise briefly to support it. The hon. Lady has marshalled a powerful argument both for the organisations and for the proposals contained in it. They are excellent social and financial organisations that for decades have provided a tremendous service to communities in many parts of the country—certainly in the northern region which I know best. My parents were members of friendly societies, as, indeed, were all the members of our family. It would have been inconceivable for us not to have participated in the local friendly society, as many others still do.
The hon. Member for Thurrock said that she could foresee the day when friendly societies might die out. Because of the services provided by the welfare state, the demand for some of their services may no longer be so relevant, but many friendly societies still thrive and provide services for their members in a wholly correct and laudable way. Therefore, they deserve the support of the House. They are mutual organisations that provide just the kind of services that this House should be seen to support. Their social and financial motives are of the best possible kind. They supplement the work of the welfare state. Therefore, they deserve encouragement. They ought not to be treated like a City organisation, interested only in profit and looking after the interests of its shareholders. Those mutual organisations seek to serve a local community's ordinary individuals who are not well off. They deserve the support of the House, and I hope that they will receive it when the House divides.

Mr. Campbell-Savours: While keeping in order, during the course of the Committee proceedings on the question whether schedule 8 should stand part of the Bill, I raised the matter of friendly societies. I shall quote what the Economic Secretary said during the proceedings, because what he said has made it necessary to raise this matter tonight:
the Government have no intention of applying a fiscal system to friendly societies which would force them out of business. That was not our intention last year, and it is not our intention now. It is early to judge the specific impact, but none of the evidence available to me suggests that the changes have had the impact that the hon. Member for Hodge Hill feared." — [Official Report, Standing Committee B, 4 June 1985; c. 316.]
I have just spoken to Mr. Madders, who is the chairman of the friendly societies liaison committee. Half an hour ago he told me that friendly societies will die if the current tax regime persists. I appeal to the Economic Secretary to see sense. If a man who represents all these organisations tells us that the future of the friendly societies he represents is endangered by a measure that was introduced last year, the Economic Secretary has a public duty to respond and reconsider the position.
When I pressed him later in Committee about the damage that might be inflicted upon small friendly societies, the Economic Secretary said that the matter was hypothetical. It is not hypothetical. We are told that damage is being done and the Economic Secretary therefore has a duty to respond.
I am also informed that if our amendment, which proposes a higher limit and raises the total premium income ceiling to £120,000 for the exempt category, were to be carried, about 97·5 per cent. of friendly societies would be relieved. Most of the 4,000 friendly societies would then be designated as falling within the tax-exempt category. If that is the case, I should have thought that, administratively, it would be wiser for the Government to proceed on that basis. I hope that, when the Minister replies, we shall be told that he has carefully costed the new clause, because the House is entitled to know how little its implementation would cost the Exchequer.
8.30 pm
The Government may raise a number of objections to what is proposed. They may say, for example, that they would oppose the new clause on the basis that it would create two categories of friendly societies. As my hon. Friend the Member for Thurrock (Dr. McDonald) pointed out, the EEC life directive—which is to be implemented by regulations under the European Communities Act 1973 in the near future — already does that, recognising that small societies cannot meet the requirements of commercial insurers, and not wanting to force them out of existence. If it is good enough for our European partners, in the form of an EEC directive, to have a two-tier system, it should be good enough for our domestic Parliament to introduce a similar two-tier system by another means.
The Government may say that distinctions between two categories would be difficult for the Revenue and the registry to supervise. The registry has a long experience, for example, of insisting on the genuine independence of societies, even against the wishes of the management committees of the societies concerned. If a society were using the higher limit, that would be a reason to insist on genuine independence.
The Government may say that branch societies are not entirely independent of their order. To be registered as a branch society, the branch must have a separate fund under its own control, as well as contribute to a fund under the control of the central body. In practice, the order operates as a policyholder's protection arrangement for the members of its branch societies, arranging for their business to be looked after if the branch gets into difficulty. As with any registered society, if a branch society is not genuinely functioning independently, its separate existence can be terminated. Surely, within that arrangement, the position is fully safeguarded.
The Government may say that the proposal would not arrest the decline of small societies. Both the numbers of registered societies and the average membership of traditional societies were declining before their limit was reduced from £2,000 to £750 last year, and that will probably continue if the proposal is accepted. However, the objection is that, without the proposal, all small societies must in time be forced out of existence. They cannot cope with the complexities of taxable business, nor is there any other type of business operation open to them.
The Government may say that the proposal would act as a deterrent to mergers. Active small societies have no


wish to merge. Societies interested in accepting transfers of engagements — and offering some advantage in transferring — will be operating on a commercial scale and be transacting taxable business.
The Government may say that a lack of experience on the part of secretaries of small societies, in that they cannot handle sums assured as large as £2,400, should be taken into account. Until last year, they were handling the £2,000 limit without difficulty. That is half the figure in real terms that they were allowed to handle in the past. Indeed, the greater financial danger comes from operating within the £750 ceiling and taking on long-term contracts unlikely to have sufficient margin to meet administrative expenses. The Minister has brought that about by changing the limits, in that he has made it almost administratively impossible for them to manage their funds effectively. In doing that, he is driving them out of business.
The Government may suggest that they cannot give advice to the public up to the standard required for investor protection. But they are not competing commercially with alternative forms of investment. The investor protection proposals have not resulted from the activities of the small traditional friendly societies. If it is not intended to close them down, the proposals must be shaped in an appropriate way to allow their survival. The same consideration applies to tax legislation and the application of doctrines such as fiscal neutrality.
The Government may say that the proposal would give small societies a tax advantage. But insurance funds are taxed on investment income less management expenses. Societies operating independently on the small scale allowed by the proposal could have management expenses less than investment income only if administrative and other services were performed free of charge by members. There is no commercial tax advantage in the proposal.
The Government may say that raising the aggregate personal limit to £2,400 would allow larger societies operating at the £750 tax exempt level to hunt in packs for business. That did not happen when the limits were £2,000 and £500 respectively. It could be overcome by restricting membership for tax-exempt business to one society only.
In every respect, the Government do not have a case on this issue. My hon. Friend the Member for Thurrock put a complex case that requires a simple solution, and that is for the Minister to agree to reconsider the position. He may not be able to accept the new clause. Nevertheless, he could—as it were, in a throwaway reply, using a phrase that he might deliberately let slip—indicate that, in the coming 12 months, the Government, recognising that there is concern in this sector, will receive further representations and, at the time of the Budget debate next year, ensure that a statement is made reflecting the position that pertains among friendly societies. In the event that it can be proven that their position has deteriorated, the Minister should introduce an amendment to restore the original position and ensure the survival of this important group of organisations.

Mr. Randall: As I listened to the remarks of my hon. Friends the Members for Thurrock (Dr. McDonald) and for Workington (Mr. Campbell-Savours), I had the feeling that we were presiding over the death of the small friendly societies. Let us remember that we are referring to societies that have existed in Britain for over a century.

They have had a special role to play in the nation, particularly in rural areas and especially for the less well-off members of society.
By the new clause, we are endeavouring to persuade the Government to give the small friendly societies the tax relief that is necessary to enable them to continue. My hon. Friend the Member for Workington referred to Mr. Madders, the spokesman for the friendly societies, saying that, if the existing tax regime continued, the societies could wither away. That would be sad.
The small friendly societies are remarkable organisations in that they operate on a sort of amateur basis. The local postman in the village might do the book-keeping. Deposits are collected and saved and the expenses incurred are trivial. Their income is far greater than their expenses. They do not have large administrative costs, not even full-time secretaries. In other words, we are not referring to the type of organisation that is looking for tax loopholes, the sort of body that was established after the situation in 1966. These organisations will be getting into a business liable for tax. In order to deal with matters that inevitably arise when one is in the taxable sector, they would need to establish appropriate skills and manpower. Looking at the tradition of the organisations, the competence, knowledge and skills do not exist because that is not in the nature of the friendly societies we have known for so many years. Establishing administrative systems and procedures and bringing in computers would all be part and parcel of the complexity of business that would ensue if the friendly societies were to enter the taxable sector. It is all very worrying. The signs are that if friendly societies move into the taxable field it will eventually lead to their death.
The new clause proposes to lift the limit on the tax-exempt business to £2,400 and to raise annuities from £156 to £500 per annum, which would be a small cost to the Treasury. Perhaps the Economic Secretary would tell us what that amounts to. I am not sure, but I understand that the amount is very small. Undoubtedly the margins of the business are such that the move into the taxable field is just not possible. Resources, assets and manpower do not exist to enable such a change to take place. The Government will destroy what are essentially very small businesses. I always thought that the Government were the party of the small business. Clearly they are not. They have been destroying small businesses through their economic policy and they can be thought of as a Government who advocate the centralisation of dereliction, the big battalion, the big heel stamping the little man and his little business. Those are not just vague and empty words. They can be substantiated.
People in the rural communities are being confronted, much against their will, with the city slickers. They are being pushed together with these organisations, the post-1966 societies, in an unacceptable way. I am sure that hon. Members do not wish to see any abuse, which we are all against. We understand that any anti-avoidance measures, which often have to be taken from time to time, must be supported because it is in everyone's interest to have regimes which prevent that kind of abuse. Nevertheless, small centralised companies with tight margins cannot afford to move into taxable businesses. Small friendly societies are going to find it almost impossible to continue.
The hon. Member for Workington made the very valid point that even the EEC directive on life assurance recognises that small friendly societies cannot compete with commercial institutions. From reports which I have


read, I note that Brussels recognised that the solvency margins would be too tight for small friendly societies. If we do not win the vote tonight I hope the Economic Secretary will give this matter careful consideration, because if we continue with existing tax arrangements on these institutions we can expect to see them wither away. That would he bad for Britain. It would be bad for the people of the rural areas. It would be a tradition of our country that was lost once and for all. The Opposition do not contemplate this lightly.

Dr. John Marek: Some weeks ago the New Statesman carried a photograph of the Financial Secretary, underneath which was the caption "The Minister for the Rich", or it might have been "The Minister for the Idle Rich" — I forget which. It remains to be seen whether the Economic Secretary will appear in a future edition of the New Statesman with the caption, "The Minister against the Working Person who Wishes to be Thrifty." This is the crux of the issue. Because this issue does not concern the idle rich and millions of pounds—as share options do—the Government are not interested.
8.45 pm
This is also an issue of mutuality. The hon. Member for Stockton, South (Mr. Wrigglesworth) asked whether there is a place for a mutual society in today's life. I believe there is. It is a concept that ought to be cherished and developed. It rises above mere capitalism and profit-making. The Government may not put it at the top of their list, but I hope that they would at least say it is a worthy concept, although one which might not make this country into a first-class industrial nation. If people wish to be guided by that concept, it is noble and should be encouraged. Unfortunately, that is not so.
Trustee savings banks are to be completely altered. Although something needed to be done, trustee savings banks are now to have shareholders and to operate in the same way as any other bank. Money is going to be siphoned away from the system. They used to be similar to credit unions, but no longer. People who invest in trustee savings banks will demand a return on their money.
The Government have decided to change the building societies and to encourage them possibly not to be mutual societies. The Economic Secretary shakes his head. I am pleased that he does. At the back of my mind there is a nagging feeling that one of the building societies is going to be encouraged to act like a bank. It might take the plunge, and have the freedom to have shareholders and perhaps to raise capital. If that happens, the concept of mutuality will go out of the window, and that will be a great pity.

Mr. Campbell-Savours: The Government will not be here long enough for that.

Dr. Marek: That may be.
My hon. Friend the Member for Thurrock (Dr. McDonald) put the case very succinctly, as did others of my hon. Friends. These societies will fade away unless something is done. It will not be a great affair of state if a small concession is given by the Government and the Bill is changed, but it will make a significant difference to quite an important section within society. It is not a financially important section, but it is important in other ways for our society.
I have not received any briefs or letters this year, although I received a number during the passage of last

year's Finance Act through the House. My hon. Friend the Member for Workington (Mr. Campbell-Savours) may be right in saying that the Minister will have some technical drafting reason why he cannot accept the new clause. In that case, I echo what my hon. Friend said, and hope that the Minister will examine the position carefully. I am sure that the friendly societies will open their books to him. If I am wrong, I apologise for wasting the time of the House. I shall not speak again next year during the passage of the Finance Bill. If I am right, the friendly societies will be prepared to open their books to the Minister and show him the difficulties that they face. There is no secret about those difficulties.
I hope that the Minister will say that he will take this matter seriously. There is genuine concern about the continuation of the friendly societies. I hope that the Minister will be prepared to redress the balance in next year's Finance Bill. That would be an eminently reasonable and sensible commitment to make. I shall not prolong the debate, as I should like to hear what the Minister has to say.

Mr. Ian Stewart: Although this has been a relatively short debate, it has been interesting. A number of hon. Members have discussed the position and recalled the debates that we had last year. Before I deal with the general points that have been made by Labour Members, I shall deal with one or two specific points. I was asked what the cost of the exemption for friendly societies would be. This is very difficult to quantify, but it may be up to £5 million — that is a highly provisional figure. I was then asked about the implications of this new clause. For reasons that I shall explain when I deal with the new clause, that is unquantifiable, but it could be a high figure.
The hon. Member for Thurrock (Dr. McDonald) referred to the EC life directive. It proposes to exempt mutual associations with a contribution of income of 500,000 ecu, or about £280,000, from its provisions. However, it is not related to tax exemptions. This is a purely administrative matter. The administrative provisions are separated from the tax and we should consider tax matters on their own merits.
The hon. Member for Thurrock also talked about the proposed abolition of SERPS and said that that would put business in the hands of life offices. The hon. Member for Workington (Mr. Campbell-Savours) made the rather offensive suggestion that the Government's decisions on friendly societies were taken as a result of pressure from the insurance companies. I repudiate that suggestion absolutely. My right hon. Friend the Secretary of State for Social Services, in making his proposals for the widening of the range of pension providers, specifically mentioned the possibility of including friendly societies.
I agree largely with the comments made by Labour Members about the value of the contribution made by friendly societies to the community. They perform a useful social purpose and I appreciate, as the hon. Member for Wrexham (Dr. Marek) said, that bodies of this kind have a mutual constitution that is not only feasible but suitable and which has undoubted advantages.
I have been accused by Labour Members of simply not understanding the nature of friendly societies. I could counter that by saying that the Opposition have simply not bothered to understand the tax implications of last year's


measures or of what they are now suggesting. As we should look at the question in a rather dispassionate fashion, I shall desist from that line.
The Government have done a number of things in the past 12 months that are helpful to friendly societies—for example, certain provisions of the Friendly Societies Act 1984. Clause 40 of the Finance Bill also envisages a number of other helpful provisions such as the backdating of policies to three months, which will now be allowed to friendly societies. This puts them on a par with the rest of the insurance industry. The Government are undoubtedly, and can perhaps be seen to be, favourable to the friendly societies, but the societies have been in decline. The figures are quite alarming. In 1950 there were about 55 orders with over 13,000 branches. Today, there are fewer than half that number of orders and about a quarter the number of branches. Over about the same period, the number of individual friendly societies has declined to 400 or below from about four times as many.
That decline has nothing to do with the tax treatment of the friendly societies' life business. It has, unfortunately, been the fact that they have been facing more competition, not just commercial competition from the industrial life offices and other competing institutions in life assurance, but competition from the development of the state retirement pensions scheme and welfare provision generally.
Many of the members of friendly societies are now getting older and towards retirement, if they have not already reached it. The problem of numbers has arisen because of the high wastage through death and retirement of the active members of the friendly societies, which has been at a greater rate than the recruitment of new members. It is difficult to say with limited statistics for a short period, but such information as I have is that over the past year or so there have been some slightly more encouraging signs about the level of recruitment. It has not reached a level that would replace the wastage, which would have to involve a considerable increase in recruitment, but the figures are not entirely without encouraging signs.
Friendly societies have recognised that there are major problems in their present role. The national conference of friendly societies wisely established a committee to consider their future and reappraise their role. The important thing to consider when dealing with their actual business is its nature. To judge from what Labour Members have said both on this occasion and during the passage of last year's Finance Act through the House, one would have thought that the business was heavily concentrated in life assurance of a kind that would be caught by the change in the tax-exempt limits that we introduced last year. That is not the case. Smaller societies are diverse, but generally speaking their business is not mainly of that kind.
The amendment could, in theory, benefit about 360 out of 400 of the centralised societies, and they have contribution incomes ranging up to £120,000, which is the figure in the amendment. Many of these societies are very little affected, if at all, by the 1984 Budget measures and therefore would not gain very much, if anything at all, from the proposed amendments. It is estimated that about half the benefits paid out by such societies are for sickness payments, benevolent grants and so on, the funds for

which are in any event tax exempt. Much of their life or endowment business is well below even the new limits which have been introduced. Much of it is for funeral provision. The figures are well below the £750 limit in last year's Budget.
9 pm
Most societies do not seem to have been engaged in selling policies of the size which would have been affected by the change in the limit. For example, the 250 smallest societies have assets of about £80,000 in all. In a random sample of 25 of those societies—that is, 10 per cent.—which the registry carried out for me, not one of them had rules providing for death benefits of more than £500. Therefore, they are within the figure we set last year. On that basis, I find it very difficult to accept the points put forward by hon. Members this year and last year.
The hon. Member for Kingston upon Hull, West (Mr. Randall) said that, if the amendment was not passed, it would be impossible for small friendly societies to continue. The hon. Member for Workington (Mr. Campbell-Savours) said that, if this amendment was not taken, all small societies might be forced out of business.

Mr. Campbell-Savours: It is not so much what we are saying: it is what we are told by the organisations themselves. They have written to us, they have sent representatives to speak to us, and we are referring what they say to the Minister. Surely they know their business. Is the Minister suggesting they are misleading us in saying that current legislation is likely to wipe them out? If he is not saying that, what is he saying? They are saying their future is in peril. If they believe that, the Minister must address himself to what they believe. It is their business, and they know it better than the Minister.

Mr. Stewart: With respect, if that is exactly what they have been saying to the hon. Gentleman, they are being misleading, because that is not the information available to the registry; it is not what they have put to me. I am in touch with representatives of the friendly societies liaison committee and the friendly society movement. The figures we introduced last year were not plucked out of thin air.

Mr. Campbell-Savours: Whom have you met?

Mr. Stewart: I have met Mr. Madders; and, if Mr. Madders can demonstrate that the limits which were introduced in the Budget last year will have an effect other than that which we believe they will have, it is open to him to produce some indication of how that will be, but he has not done so. He has made assertions of the kind which the hon. Gentleman has made.

Dr. McDonald: In view of the remarks the Minister has made, will he undertake to meet Mr. Madders with me so that we can discuss these matters with Mr. Madders?

Mr. Stewart: I am quite willing to meet Mr. Madders and quite willing to talk to the hon. Lady independently. I am always ready to meet members of representative bodies.

Mr. Campbell-Savours: The Minister is frightened.

Mr. Stewart: I am not frightened of anybody. In discussions between representative bodies and Ministers, it is better if they are allowed to meet and discuss these things between themselves. If the Opposition—

Dr. McDonald: rose—

Mr. Stewart: I will not give way until I finish what I am about to say. If the hon. Lady and the Opposition have any material information to put forward, I hope they will do so, but they have had an opportunity in this debate and have totally failed. If they are meant to be representing the interests of the friendly societies, they ought to have done their homework. They ought to have found out about these societies, they ought to know the sort of information which I have been giving to the House, and they ought to be able to explain how the societies would be suffering. Now I will give way to the hon. Lady.

Dr. McDonald: Is the hon. Gentleman saying that he will not receive a deputation consisting of myself, Mr. Madders and others who are interested and involved in the friendly societies? That is extraordinary.

Mr. Stewart: It is not at all extraordinary. Mr. Madders is perfectly able to have access to me and to the registry, and I am perfectly ready to discuss these matters with him. The point I made seems to have offended the hon. Lady. Although she asked so charmingly for me to give way, I wish she would apply herself to the actual question which I put, which is that the application—

Dr. McDonald: Will the hon. Gentleman give way?

Mr. Stewart: No, not for the moment. If the hon. Lady is not prepared to let me answer the debate, it seems to suggest that she has no arguments to put forward.
Taxable limits do not have the dramatic effect that Labour Members claim. If they did, no doubt Labour Members and Mr. Madders would be explaining to me and to the Chief Registrar that that was the consequence of the changes. However, that has not been the case.

Dr. McDonald: The hon. Gentleman has been making extraordinary assertions about the sort of deputations that he will or will not receive. Is he really telling us that he will not receive an official Opposition spokesman plus whom ever that spokesman wishes to bring along? If so, that is extraordinary.

Mr. Stewart: I am perfectly ready to see Mr. Madders and other representatives of the friendly societies liaison committee, as I am ready to see representatives of the building societies or other bodies for which I have ministerial responsibility. I am also perfectly ready to see the hon. Member for Thurrock if she and her colleagues want to come and see me. However, I am not obliged to see representatives of the bodies for which I am responsible and Opposition spokesmen at the same time. If the hon. Lady wants to come and see me, I shall be happy to see her.
Unlike the hon. Member for Thurrock, I have an objective interest in the friendly societies. I want to see them prosper and flourish. I hope that they will be able to determine the reasons for the considerable decline and I am always interested to consider the financial, technical and tax aspects of their business because they are valuable bodies in our society.
The new clause would not be appropriate. If the benefit of tax exemption were passed on to policyholders, by giving more favourable terms, that would be contrary to reasonable and fair competition with the industrial life offices and others in the market place. If the benefit were not passed on, it would be used to subsidise either higher

management costs or the societies' other business. Neither seems to be a proper use for tax exemption on life assurance.
A more practical and, although technical, important reason why the new clause is not appropriate is that it would be wide open to abuse and exploitation. When a friendly society reached the limit of £120,000, it would only have to establish a new society alongside it—with the same management and the same officers — and double the amount of business could be done. When the new limit was reached, the process could be multiplied.
As the new clause would apply to all friendly societies, the scope for exploitation would be considerable. I do not expect that many of the traditional friendly societies would exploit the provision, but that is not the point. Because the more recently founded commercial societies are more adept at exploiting commercial opportunities, they would be able to do so and it would not be necessary to find pre-1966 or traditional societies for that purpose. However, those societies could also exploit the provision. On grounds of principle and practical implications, I suggest that the House should reject the new clause.
The friendly societies have set up a committee to consider their future and we ought to continue to keep their affairs under general review. A period of stability after the many recent changes would probably be in the interests of the friendly societies.
The new clause would be open to widespread exploitation and it would not have a dramatic effect on the smaller societies about which Opposition Members have expressed so much concern.

Dr. McDonald: We have heard extraordinary statements from the Economic Secretary about the future of friendly societies and the Government's treatment of them. He declared that friendly societies were declining for all sorts of reasons, some of which I am prepared to accept and that the change that the Government instituted in the tax regime had had no effect on them, and had done nothing to hasten their decline, and he suggested that Mr. Madders was giving misleading information to me and my right hon. and hon. Friends.
The letter from the Independent Order of Odd Fellows Manchester Unity Friendly Society, to which I have already referred, does not coincide with the Minister's view. It states:
We find it difficult to understand why this government with its commitments to thrift and appeals to the nation to become a caring society should deal such a harsh blow to those who work voluntarily for the good of their fellow men in this field … We can only view the suggestion emanating from the Treasury that Branches and small Societies … should switch to taxable business as an admission that the new limit is unreasonable and unworkable in the necessity for Branches and small Societies to remain solvent.
That is the view of a major order, not merely Mr. Madders. It sent the letter to the Chancellor of the Exchequer and was, presumably, willing to defend its remarks.
When the Economic Secretary replied to my hon. Friend the Member for Workington (Mr. Campbell-Savours) in Committee, he said:
It is not our job to put friendly societies out of business … I was about to say that the Government have no intention of applying a fiscal system to friendly societies which would force them out of business. That was not our intention last year, and it is not our intention now." — [Official Report, Standing Committee B, 4 June 1985; c. 316.]
To justify the Government's position, the Economic Secretary must say that the societies are declining and,


therefore, no longer matter, and that the previous tax changes are not in any way a cause of that decline. That simply does not stand up. It is astonishing that he cannot bring himself to discuss his reply with Mr. Madders, representatives of the friendly societies, some of my colleagues and me.
The Economic Secretary suggests that if the new clause is accepted the change in the tax regime would give friendly societies an unfair advantage in competition with life assurance companies, but it will not. He continues to fail to understand the nature of the organisations. They are small, democratic and run by their membership, and the possible abuse that he suggested will not occur in traditional friendly societies. If he believes that abuse will occur, why did the Government change the limit in 1980 and then put the regime in reverse in 1984?
The Government cannot support all their actions towards friendly societies. Either they were happy to double the limit to £2,000, as in 1980, or the Minister believes what he says, in which case it flies in the face of the way in which the friendly societies have operated for a long time. Friendly societies are more or less under the control of their members, and they would not set up a parallel organisation as he suggested.
The Economic Secretary said how sorry he was that distasteful remarks had been made about insurance companies. The tenor of his reply suggests—well, let us face it, insurance companies give money to the Conservative party. We are not sure how many or how much. Perhaps the hon. Gentleman would like to intervene and tell us. His imposition of harsh limits on friendly societies has hastened their decline.

Mr. Campbell-Savours: My hon. Friend asked about contributions. She will remember that the Labour party research department did some work on this for 1983. I had a list yesterday which showed that at least seven major assurance companies had given money to the Tory party—we are talking in terms of hundreds of thousands of pounds. Vast amounts of money are involved and they must have some bearing on how the Government think on these matters.

Dr. McDonald: I am grateful to my hon. Friend for that useful and relevant information. It makes us think that insurance companies will get their reward when the state earnings-related pension scheme is abolished.
The Economic Secretary to the Treasury rightly said that friendly societies undertake business other than insurance and that many do not engage in that type of business at all. The number of societies that want to engage in such business and the number of people who want to take out policies through friendly societies are such a tiny part of the insurance market that I do not understand the Government's attitude. By accepting new clause 2, the Government would allow that section of the market to continue. They would also allow people to continue to exercise their freedom of choice and to insure themselves through friendly societies, as did their forebears.
The Economic Secretary knows that friendly societies are beginning to decline, and he is hastening their demise, but he has not produced one sensible justification for that.

He has merely shown that he does not understand these mutual self-help organisations and the part that they have played in working-class life. They will not engage in commercial business or the abuses that he outlined. They simply do not operate like that. The post-1966 societies found a loophole, but they did not share anything of the ethos and customs of the traditional societies. The Economic Secretary should have grasped that by now. His failure to do so and his insistence that this little part of the market should be squeezed out of existence more rapidly will strengthen my right hon. and hon. Friends' resolve to vote for the new clause.

Question put, That the clause be read a Second time:—

The House divided: Ayes 167, Noes 238.

Division No. 266]
[9.17 pm


AYES


Abse, Leo
Faulds, Andrew


Alton, David
Field, Frank (Birkenhead)


Ashdown, Paddy
Fields, T. (L'pool Broad Gn)


Ashton, Joe
Fisher, Mark


Atkinson, N. (Tottenham)
Flannery, Martin


Bagier, Gordon A. T.
Forrester, John


Barnett, Guy
Foster, Derek


Barron, Kevin
Fraser, J. (Norwood)


Beckett, Mrs Margaret
Freeson, Rt Hon Reginald


Beith, A. J.
Garrett, W. E.


Benn, Tony
George, Bruce


Bennett, A. (Dent'n &amp; Red'sh)
Gilbert, Rt Hon Dr John


Bermingham, Gerald
Godman, Dr Norman


Bidwell, Sydney
Golding, John


Blair, Anthony
Gourlay, Harry


Boothroyd, Miss Betty
Hamilton, James (M'well N)


Boyes, Roland
Hancock, Mr. Michael


Bray, Dr Jeremy
Hardy, Peter


Brown, Gordon (D'f'mline E)
Harman, Ms Harriet


Brown, Hugh D. (Provan)
Harrison, Rt Hon Walter


Brown, N. (N'c'tle-u-Tyne E)
Hart, Rt Hon Dame Judith


Brown, R. (N'c'tle-u-Tyne N)
Heffer, Eric S.


Bruce, Malcolm
Hogg, N. (C'nauld &amp; Kilsyth)


Buchan, Norman
Holland, Stuart (Vauxhall)


Caborn, Richard
Home Robertson, John


Callaghan, Jim (Heyw'd &amp; M)
Howells, Geraint


Campbell-Savours, Dale
Hughes, Dr. Mark (Durham)


Carlile, Alexander (Montg'y)
Hughes, Robert (Aberdeen N)


Carter-Jones, Lewis
Hughes, Roy (Newport East)


Clark, Dr David (S Shields)
Hughes, Sean (Knowsley S)


Clarke, Thomas
John, Brynmor


Clay, Robert
Jones, Barry (Alyn &amp; Deeside)


Cocks, Rt Hon M. (Bristol S.)
Kennedy, Charles


Cohen, Harry
Kilroy-Silk, Robert


Coleman, Donald
Kirkwood, Archy


Concannon, Rt Hon J. D.
Lambie, David


Cook, Frank (Stockton North)
Leighton, Ronald


Cook, Robin F. (Livingston)
Lewis, Ron (Carlisle)


Corbett, Robin
Lewis, Terence (Worsley)


Cowans, Harry
Litherland, Robert


Cox, Thomas (Tooting)
Livsey, Richard


Craigen, J. M.
Lloyd, Tony (Stretford)


Cunliffe, Lawrence
Lofthouse, Geoffrey


Davies, Rt Hon Denzil (L'lli)
McCartney, Hugh


Davis, Terry (B'ham, H'ge H'l)
McDonald, Dr Oonagh


Deakins, Eric
McKelvey, William


Dewar, Donald
MacKenzie, Rt Hon Gregor


Dixon, Donald
McNamara, Kevin


Dobson, Frank
McTaggart, Robert


Dormand, Jack
McWilliam, John


Dubs, Alfred
Marek, Dr John


Dunwoody, Hon Mrs G.
Marshall, David (Shettleston)


Eadie, Alex
Martin, Michael


Eastham, Ken
Mason, Rt Hon Roy


Edwards, Bob (W'h'mpt'n SE)
Maxton, John


Ellis, Raymond
Meacher, Michael


Evans, John (St. Helens N)
Meadowcroft, Michael


Ewing, Harry
Michie, William


Fatchett, Derek
Millan, Rt Hon Bruce






Miller, Dr M. S, (E Kilbride)
Sheerman, Barry


Mitchell, Austin (G't Grimsby)
Sheldon, Rt Hon R.


Morris, Rt Hon J. (Aberavon)
Short, Ms Clare (Ladywood)


Oakes, Rt Hon Gordon
Short, Mrs R. (W'hampt'n NE)


O'Brien, William
Silkin, Rt Hon J.


O'Neill, Martin
Skinner, Dennis


Park, George
Snape, Peter


Parry, Robert
Stott, Roger


Patchett, Terry
Strang, Gavin


Pavitt, Laurie
Straw, Jack


Pendry, Tom
Thompson, J. (Wansbeck)


Penhaligon, David
Thorne, Stan (Preston)


Pike, Peter
Tinn, James


Powell, Raymond (Ogmore)
Torney, Tom


Prescott, John
Wainwright, R.


Randall, Stuart
Wareing, Robert


Redmond, M.
Weetch, Ken


Richardson, Ms Jo
White, James


Roberts, Allan (Bootle)
Wilson, Gordon


Roberts, Ernest (Hackney N)
Winnick, David


Robertson, George
Wrigglesworth, Ian


Robinson, G. (Coventry NW)
Young, David (Bolton SE)


Rogers, Allan



Rooker, J. W.
Tellers for the Ayes:


Rowlands, Ted
Mr. Frank Haynes and


Ryman, John
Mr. Allan McKay.


Sedgemore, Brian



NOES


Aitken, Jonathan
Colvin, Michael


Alexander, Richard
Coombs, Simon


Amess, David
Cope, John


Ancram, Michael
Cormack, Patrick


Ashby, David
Corrie, John


Aspinwall, Jack
Couchman, James


Atkins, Robert (South Ribble)
Cranborne, Viscount


Baker, Rt Hon K. (Mole Vall'y)
Currie, Mrs Edwina


Baker, Nicholas (N Dorset)
Dickens, Geoffrey


Baldry, Tony
Dorrell, Stephen


Banks, Robert (Harrogate)
Douglas-Hamilton, Lord J.


Batiste, Spencer
Dover, Den


Bellingham, Henry
du Cann, Rt Hon Sir Edward


Bendall, Vivian
Dunn, Robert


Bennett, Rt Hon Sir Frederic
Eggar, Tim


Bevan, David Gilroy
Emery, Sir Peter


Biff en, Rt Hon John
Evennett, David


Biggs-Davison, Sir John
Fairbairn, Nicholas


Blaker, Rt Hon Sir Peter
Fallon, Michael


Body, Richard
Farr, Sir John


Bonsor, Sir Nicholas
Favell, Anthony


Boscawen, Hon Robert
Finsberg, Sir Geoffrey


Bottomley, Peter
Fletcher, Alexander


Bottomley, Mrs Virginia
Forman, Nigel


Bowden, A. (Brighton K'to'n)
Forsyth, Michael (Stirling)


Bowden, Gerald (Dulwich)
Forth, Eric


Boyson, Dr Rhodes
Fraser, Peter (Angus East)


Brandon-Bravo, Martin
Gale, Roger


Bright, Graham
Garel-Jones, Tristan


Brinton, Tim
Gilmour, Rt Hon Sir Ian


Brown, M. (Brigg &amp; Cl'thpes)
Goodhart, Sir Philip


Browne, John
Gorst, John


Bruinvels, Peter
Gower, Sir Raymond


Bryan, Sir Paul
Grant, Sir Anthony


Burt, Alistair
Gregory, Conal


Butcher, John
Griffiths, Sir Eldon


Butler, Hon Adam
Grist, Ian


Butterfill, John
Grylls, Michael


Carlisle, John (N Luton)
Gummer, John Selwyn


Carlisle, Kenneth (Lincoln)
Hamilton, Hon A. (Epsom)


Carlisle, Rt Hon M. (W'ton S)
Hamilton, Neil (Tatton)


Carttiss, Michael
Hampson, Dr Keith


Cash, William
Hargreaves, Kenneth


Chalker, Mrs Lynda
Harris, David


Chapman, Sydney
Hayhoe, Rt Hon Barney


Churchill, W. S.
Heathcoat-Amory, David


Clark, Dr Michael (Rochford)
Heddle, John


Clark, Sir W. (Croydon S)
Henderson, Barry


Clarke, Rt Hon K. (Rushcliffe)
Higgins, Rt Hon Terence L


Clegg, Sir Walter
Hill, James


Cockeram, Eric
Hind, Kenneth





Hirst, Michael
Raison, Rt Hon Timothy


Howard, Michael
Rees, Rt Hon Peter (Dover)


Howell, Rt Hon D. (G'ldford)
Rhodes James, Robert


Jenkin, Rt Hon Patrick
Rhys Williams, Sir Brandon


King, Roger (B'ham N'field)
Ridley, Rt Hon Nicholas


Knight, Greg (Derby N)
Ridsdale, Sir Julian


Knowles, Michael
Rifkind, Malcolm


Lang, Ian
Robinson, Mark (N'port W)


Lawler, Geoffrey
Roe, Mrs Marion


Lawson, Rt Hon Nigel
Rost, Peter


Lee, John (Pendle)
Rumbold, Mrs Angela


Lewis, Sir Kenneth (Stamf'd)
Ryder, Richard


Lightbown, David
Sackville, Hon Thomas


Lilley, Peter
Sainsbury, Hon Timothy


Lloyd, Ian (Havant)
Sayeed, Jonathan


Lord, Michael
Shaw, Giles (Pudsey)


Luce, Richard
Shaw, Sir Michael (Scarb')


Lyell, Nicholas
Shelton, William (Streatham)


McCrindle, Robert
Shepherd, Colin (Hereford)


McCurley, Mrs Anna
Shepherd, Richard (Aldridge)


Macfarlane, Neil
Shersby, Michael


MacKay, Andrew (Berkshire)
Silvester, Fred


MacKay, John (Argyll &amp; Bute)
Sims, Roger


McNair-Wilson, P. (New F'st)
Skeet, T. H. H.


McQuarrie, Albert
Smith, Tim (Beaconsfield)


Madel, David
Speed, Keith


Major, John
Speller, Tony


Malins, Humfrey
Spencer, Derek


Malone, Gerald
Spicer, Jim (W Dorset)


Maples, John
Squire, Robin


Marland, Paul
Stanbrook, Ivor


Marlow, Antony
Stanley, John


Marshall, Michael (Arundel)
Steen, Anthony


Mather, Carol
Stern, Michael


Maude, Hon Francis
Stevens, Lewis (Nuneaton)


Mawhinney, Dr Brian
Stevens, Martin (Fulham)


Maxwell-Hyslop, Robin
Stewart, Allan (Eastwood)


Mellor, David
Stewart, Andrew (Sherwood)


Merchant, Piers
Stewart, Ian (N Hertf'dshire)


Miller, Hal (B'grove)
Stokes, John


Mills, Iain (Meriden)
Stradling Thomas, J.


Mills, Sir Peter (West Devon)
Tapsell, Sir Peter


Miscampbell, Norman
Taylor, John (Solihull)


Mitchell, David (NW Hants)
Taylor, Teddy (S'end E)


Moate, Roger
Temple-Morris, Peter


Montgomery, Sir Fergus
Thompson, Donald (Calder V)


Moore, John
Thompson, Patrick (N'ich N)


Morris, M. (N'hampton, S)
Thorne, Neil (Ilford S)


Moynihan, Hon C.
Thurnham, Peter


Mudd, David
Townend, John (Bridlington)


Murphy, Christopher
Tracey, Richard


Neale, Gerrard
Trotter, Neville


Needham, Richard
van Straubenzee, Sir W.


Nelson, Anthony
Vaughan, Sir Gerard


Newton, Tony
Walker, Bill (T'side N)


Nicholls, Patrick
Waller, Gary


Osborn, Sir John
Ward, John


Ottaway, Richard
Wardle, C. (Bexhill)


Page, Sir John (Harrow W)
Watson, John


Page, Richard (Herts SW)
Watts, John


Parris, Matthew
Wells, Sir John (Maidstone)


Patten, Christopher (Bath)
Wheeler, John


Pattie, Geoffrey
Whitfield, John


Pawsey, James
Wolfson, Mark


Pollock, Alexander
Wood, Timothy


Portillo, Michael
Yeo, Tim


Powell, William (Corby)



Powley, John
Tellers for the Noes:


Prentice, Rt Hon Reg
Mr. Tony Durant and


Price, Sir David
Mr. Michael Neubert.

Question accordingly negatived.

New clause 5

PAYMENT OF EXCISE DUTY ON SPIRITS AND WINES

'The Alcoholic Liquor Duties Act 1979 shall be amended by inserting after section 74 the following section—
74A.—(1) Any duty chargeable on spirits or wines pursuant to section 5, or section 54 above shall be paid, in any year commencing with the year which begins 1st April 1985, fifty-six days after the commencement of the relevant period.
(2) In subsection (1) above 'relevant period' means the period beginning with the date on which the spirits or wines in question are imported into the United Kingdom or removed from an excise warehouse (as the case may be) and ending on the date on which those spirits or wines are sold to a person otherwise than in the course of an excise licence trade carried on by him.
(3) The powers of the Commissioners to make regulations under this Act or under any other enactment shall be read and construed subject to, and in accordance with, this section.".'.—[Mr. Hirst.]

Brought up, and read the First time.

Mr. Michael Hirst: I beg to move, That the clause be read a Second time.
The present 28-day period of duty deferment was introduced in April 1983 to give the wines and spirits trade a period of grace before excise duty had to be paid on goods brought out of bond or imported. That relief was given not least to help the hard-pressed Scotch whisky industry and to protect jobs in an industry which generates huge exports for the United Kingdom.
Since that deferment of duty was introduced, a number of measures have adversely affected the cash flow and profits of the wines and spirits trade, especially the Scotch whisky industry on which many jobs in my constituency depend. Two years ago, the concessions on tolerance losses on the bottling of spirits were withdrawn and as part of the revision of the corporate sector's fiscal regime in last year's Finance Act, stock relief was also withdrawn. I do not object to the fact that there was no exemption for the Scotch whisky industry when stock relief was withdrawn, as I realise that that would have been invidious. Nevertheless, no other industry depended so much on stock relief as the Scotch whisky industry which has a unique stock-sales ratio because whisky has to mature for a long period. The Finance Act 1984 also eliminated the postponed accounting system for VAT, to the detriment of the cash flow and profits of wine importers, many of whom also own Scotch whisky or other spirit distilling concerns.
Duty deferment was introduced as an acknowledgement of the adverse impact on cash flow of financing excise duty when the average period between import or clearance from bond and the receipt of the proceeds of sale from the ultimate customer was approximately 12 weeks. In answer to a parliamentary question from my hon. Friend the Member for Reigate (Mr. Gardiner) on 30 April 1985, my right hon. Friend the Minister of State said that the period of duty deferment in the United Kingdom was very modest compared with that in other EEC countries, where it could range up to six months.
My right hon. Friend will also be aware of the recommendations in the report of the Food and Drink Manufacturing Economic Development Committee on Scotch whisky in the 1980s. The new clause seeks to extend the duty deferment period from four weeks, or 28

days, to eight weeks, or 56 days, which is still considerably short of the 12-week average financing period between withdrawal from bond and the receipt of sales proceeds. It is a long way short of comparable duty deferment periods in EEC member countries.
I accept that the proposal that I have brought before the House in the new clause was costed in the answer that my right hon. Friend the Minister of State gave to my hon. Friend the Member for Reigate on 30 April. I accept that £185 million is a far from insignificant sum.
I could not end my speech without referring to the fact that the Scotch whisky industry is appreciative, as I am, of the lenient treatment that it received in the Budget on excise duty valorisation. The new clause should not be misinterpreted as representing a failure to acknowledge that. It is, rather, an effort to draw continued attention to the plight of the Scotch whisky industry, which can be represented by the number of distilleries that are not currently working, which have been shut down on a care and maintenance basis, or which are working at capacity of about 30 per cent. There is a real problem in the Scotch whisky industry, and that is what I am seeking to ventilate by moving the new clause.

Mr. Roger Sims: I declare an interest as an adviser to the Scotch Whisky Association. If hon. Members will excuse the pun, I support the spirit of new clause 5.
As my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) said, there is often a period of 12 weeks between whisky being drawn out of bond and being sold. In the wholesale trade, it is usual to have a month or two's account to allow for such expense. The agreement reached a year or two ago was that there should be an average four-week deferment period so that there was some assistance to the industry in paying the duty to which my hon. Friend refers. The new clause suggests that the period should be extended to eight weeks. I shall not quibble about precisely what would be a reasonable period of deferment. Something between nothing at all and the 12-week average period is six weeks, and that is the period that the SWA would like. An average of six weeks means that there would be a minimum of four weeks and a maximum of eight weeks. That would assist the industry very much in cash flow, which, as my hon. Friend said, is a real problem, and has been exacerbated by several measures in the past few years, particularly the abolition of stock relief.
The House will recall that that relief was a corporation tax concession to alleviate the stock value problems caused by high inflation. It was withdrawn precipitately in March 1984. It was not a gradual withdrawal — it was withdrawn at one fell swoop. It had a particularly serious effect on the Scotch whisky industry because its stocks have to be kept for so many years. It is curious that it is a capital-intensive industry, but the capital is tied up not in plant and machinery but in its stocks.
I shall not repeat all the arguments about stock relief. My hon. Friend will be familiar with them. In any event, I am conscious that they are not the subject of the new clause and I would not wish to incur your displeasure, Mr. Speaker. I say only that the abolition of stock relief has caused a real cash flow problem to the Scotch whisky industry, which estimates that its additional tax liability for the most recent financial year, simply through the withdrawal of stock relief, is some £30 million.
The extension of the period of deferment would, to some extent, alleviate the problem and would, as my hon. Friend said, bring United Kingdom practice into line with practice elsewhere. It would not be an unduly expensive measure, because it is a one-off step. There would be a cost to the Treasury this year, but it would not recur. I hope that my right hon. Friend will consider the new clause sympathetically.

Dr. Marek: The hon. Member for Strathkelvin and Bearsden (Mr. Hirst) said that some distilleries have been shut or closed temporarily on a care and maintenance basis. If that is the case, the House should be worried, because the whisky industry is a successful one that contributes to our balance of payments and has a good record of exports. It would be a great pity if the industry went into decline. I blame the Government across the board for decimating manufacturing industry and exports during the past five or six years, and it would be sad if yet another industry were to bite the dust simply because it did not receive the right help at the right time. The Government could provide such help, although it may be only temporary.
I may have got it wrong, and the industry may be healthy. Perhaps it wants this tax concession simply to make more profits. I do not know. It could be one or the other, or it may be a mixture of both. I hope that when the Minister replies he will use some of the time—I suspect that he will resist the new clause—to reassure me and the House that the whisky industry is in a good state, that it will continue to make exports for the benefit of Britain, and that we shall continue to have the present large range of malt whiskies.

Sir Hector Monro: I firmly support the plea of my hon. Friends the Members for Strathkelvin and Bearsden (Mr. Hirst) and for Chiselhurst (Mr. Sims) for the Government to accept the new clause. Sadly, unlike most Scottish Members, I have no constituency interest. Therefore, I speak only on behalf of a great Scottish industry that deserves as much support as it can get at a time of high unemployment, distilleries closing or going on short time, and boxing and blending plants being in a similar plight. Those of us who live in Scotland realise that that is a fact, and that we cannot turn a blind eye to one of Britain's great industries, which has provided much valuable export revenue for many years, but which is running into difficulties for reasons that are well known to Ministers. We should now think seriously about providing additional assistance.
My right hon. Friend the Minister will know that, this year, many distilleries will have to pay substantially increased rates on their plants, which are not covered by commercial or domestic relief. That has created substantial worries about their cash flows later in the year.
At the beginning of this year, my right hon. Friend the Minister was kind enough to meet a deputation of Scottish Conservative Members, who put to him the serious plight of the whisky industry. I appreciated his sympathetic hearing of our case. We welcome the favourable treatment in the Budget in relation to excise duty on whisky as compared with other spirits, and there is no question but that the whisky industry appreciated that concession. We must go further if we are to promote the industry to the top of the tree in terms of home and export production.
9.45 pm
My hon. Friend the Member for Strathkelvin and Bearsden has explained the technical aspects of the new clause relative to stock relief, which seem to the industry to be the most effective way to obtain assistance in the immediate future. The concession on stock relief which might put the Scottish industry in a similar position to that of some of our competitors in Europe would be an enormous help. In the past, Ministers have listened sympathetically to representations on the industry's plight. I know that, if they had the time to go to the whisky-producing areas in Scotland, they would see that what we have said is the truth—many distilleries have closed and many operate on short time. There is great concern in the Highlands about the future of the most important industry in the area.
I hope that Ministers have listened sympathetically to what hon. Members have said and that they will accept the new clause as a measure that will assist an industry that could do so much for our economy.

Mr. Terry Davis: I have listened with interest to what Conservative Members have said in advocating the new clause and have carefully read the papers that were kindly sent to me by the hon. Member for Strathkelvin and Bearsden (Mr. Hirst). I recognise that there is a problem. Nevertheless, I take a relaxed view of this issue because I confidently predict that the hon. Member for Strathkelvin and Bearsden will not press his new clause to a Division, whatever the Government say.

The Minister of State, Treasury (Mr. Barney Hayhoe): This short debate has concentrated on the whisky industry, although the purpose of the new clause goes rather wider than that important industry, which I think draws support from both sides of the House. We all recognise the special place of that industry in exports and its substantial contribution to trade over the years.
I am advised that the drafting of the new clause is not entirely clear. From what my hon. Friend the Member for Strathkelvin and Bearsden (Mr. Hirst) said, it is clear that he wishes to extend the deferment from four weeks to eight weeks and thereby improve the cash position of the Scotch whisky industry on which he concentrated. The measure would also affect other industries and other parts of the spirits and wine interests at home and abroad.
My hon. Friend the Member for Strathkelvin and Bearsden explained that the wine and spirits trade has been pressing for an extension of duty deferment to help its financial position and to offset the effects of various measures which have eroded the benefit of duty deferment since it was introduced in February 1983. My hon. Friend referred to the withdrawal of postponed accounting for VAT in the last Budget, the withdrawal of stock relief, the changes relating to the duty on strengths and quantities declared on bottle labels, tolerances and matters of that kind. I assure my hon. Friend that representations made direct to Treasury Ministers by the Scotch Whisky Association and others were taken into account by my right hon. Friend the Chancellor in the context of his Budget judgment and decisions this year. He decided to deal favourably with the Scotch whisky industry, and I am glad that hon. Members have referred to that decision. It is of significant value to the industry.
If one were minded to accept the spirit of the new clause and to allow increased duty deferment for wines and spirits, there would quickly be strong pressure from the


beer industry and cider makers saying that they, too, should be treated similarly. The cost of the extension of deferment proposed in the clause would be a once-and-for-all loss in the financial year of about £185 million. If the cider and beer interests got in on the act—the pressures would be great — the costs would nearly double and there would be a once-and-for-all cost of £350 million. These sums show how impossible it would be in the context of the Budget to make the concession for which my hon. Friends ask.
The Government have shown sympathetic concern for the Scotch whisky industry on a number of occasions during their lifetime. Favourable treatment has been meted out to it and I can assure my hon. Friends that sympathetic consideration will be given to their representations in future. I hasten to add that I am making no commitment to further favourable treatment. However, I am sure that my right hon. Friend the Chancellor of the Exchequer will give sympathetic consideration to the industry. I understand that all his predecessors have done so and I am sure that all his successors will. It is an industry that attracts a great deal of support on both sides of the House.
I am sorry that I am unable to accede to the requests of my hon. Friend the Member for Strethkelvin and Bearsden in his moderate, balanced and reasonable speech. I hope that the forecast of the hon. Member for Birmingham, Hodge Hill (Mr. Davis) will prove correct and that my hon. Friend will seek leave to withdraw the motion.

Mr. Hirst: I welcome the support that has been forthcoming from my right hon. Friend the Member for Chislehurst (Mr. Sims), who speaks authoritatively on behalf of the Scotch Whisky Association. It is true that I am seeking an extension of the deferment that will involve a once-and-for-all cost. I shall take the opportunity of taking to task the hon. Member for Wrexham (Dr. Marek), who is prepared always to attribute the woes of any industry to Government action. However, it is a fact that drinking habits have changed and that the Scotch whisky industry faces a threat from the increased popularity of white spirits. The industry is facing marketing difficulties.
It is always helpful and enormously consoling to have the support of my hon. Friend the Member for Dumfries (Sir H. Monro). My hon. Friend has no whisky interests and we must admire his modesty in declining to articulate his interest as a consumer of the product.

Mr. Maxton: Will the hon. Gentleman ask the leave of the House to withdraw the motion?

Mr. Hirst: The hon. Gentleman will have to wait to learn my intentions. The hon. Member for Birmingham, Hodge Hill (Mr. Davis) might have done better to listen to my opening remarks. I made it clear that the purpose of the clause was to draw attention to the importance of the whisky industry, to the difficulties that it has faced in recent years and to my desire that the sympathetic consideration that my right hon. Friend has expressed this evening will find its way into legislative effect next year. On that basis, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 10

POSTMEN'S CHRISTMAS GRATUITIES

'The provisions of section 183 (1) of the Income and Corporation Taxes Act 1970 shall have effect except in regard to personal Christmas gifts and presents given to individual postmen in appreciation of the recipient's personal qualities, such as faithfulness, consistency, and a readiness to oblige.'.—[Mr. Campbell-Savours.]

Brought up, and read the First time.

Mr. Campbell-Savours: I beg to move, That the clause be read a Second time.
This issue first came to the attention of British postmen and postwomen about a year ago when members in branches of the Union of Communication Workers in the area covered by the Guildford Inland Revenue office received a shock assessment of their income. The inspector of taxes had deemed that all postmen and postwomen received £150 in tips whether or not they receive them, and that they were to be taxed on those tips. The notices that included the assessment had wrongly been issued to members of the UCW who never delivered mail, including a number of individual postmen who had no direct contact with the public that they served. Cases then surfaced in Blackburn, Chorley, Preston, Burnley and Southport. Many more are no doubt in the pipeline.
After some exchanges between the professional advisers of the UCW and the Inland Revenue, the notices to non-delivery members were withdrawn and a long argument about the nature of Christmas boxes began. The union's case was, and still is, that any tip received at Christmas — whether a bar of chocolate, a calendar, a bottle or cash — is a gift and not a reward for work, in the sense that it becomes a part of earnings. The union's accountants and solicitors have pressed the case most firmly throughout the year with the Inland Revenue authorities. Just before Christmas a meeting was held with the district inspector in London Provincial 20. Following the meeting it was confirmed after discussions with the Inland Revenue's policy division, that its view was that, on the basis of present information, there were no grounds either in equity or in law for the issue of any extra-statutory concessions in respect of submissions that Christmas tips were a gift from customers and as such should not be taxable.
It was suggested in some quarters, particularly in the press, that the employers had the power to vary the decision of the Inland Revenue. This suggestion has proved to be completely unfounded, but it arose from the confusion caused by the original decision. In the discussions with the inspector, the Inland Revenue representatives made the point that comparatively few postmen who had received the notice had appealed to their local tax authority. The union pointed out that this was still the position and that it was advising that course of action. As the union wanted a decision in Parliament, there were dangers in risking appeal decisions that might be unfavourable to the union membership.
The amendment is important in so far as the wording is drawn from two sources. First, it is drawn from a letter from the Guildford office of the Inland Revenue which identifies section 183(1) of the Income and Corporation Taxes Act 1970 as the section which has led to this penal tax assessment having been made. Secondly, and perhaps more importantly, it is drawn from a judgment in the case of Seymour v. Reed in which it was held that


gifts or presents made to a person on personal grounds and not by way of a payment for his services are not included as 'salaries, fees, perquisites, profits, etc.' The fact that a payment is made by someone other than the employer suggests that the payment is made by way of gift. A voluntary payment may be made in circumstances which show that it is given by way of a present on grounds personal to the recipient. In such a case the proper conclusion is likely to be that the voluntary payment is not a profit accruing to the recipient by virtue of his employment but a gift to him as an individual, paid and received by reason of his personal qualities or attainments.

Mr. Moore: indicated assent.

Mr. Campbell-Savours: I see that the Financial Secretary is nodding his head. I hope that he will also nod his head when it comes to winding up the debate and that he will say that he agrees with the new clause.

Sir William Clark: Who wrote it?

Mr. Campbell-Savours: The hon. Member for Croydon, South (Sir W. Clark) asks who wrote it. The judge did. This was his judgment:
It was also pointed out by Mr. Justice Atkinson in the case of Seymour v. Reed that a sum given as a present in appreciation of the recipient's personal qualities, such as faithfulness and consistency"—
we know that the hon. Member for Croydon, South subscribes to such principles—
and readiness to oblige, would not be taxable.
The judgment concluded:
We are of the opinion that these tips are not, therefore, taxable.
The Union of Communication Workers cannot accept that a one-off gift to a postman at Christmas time must be treated on the same basis as regularly given tips and gratuities to taxi drivers, waiters and hairdressers. Their measure and magnitude make them totally different.
It would be wrong for the Minister, when replying, to address himself to what he may consider to be a similarity. I think I see him shaking his head in dissent. I hope that that means that he will not deploy an argument on the basis of similarity. Taxi drivers and waiters have been known to solicit tips. Britain's postmen are precluded, by the rules of the Post Office, from soliciting tips.
10 pm
I wish to draw attention to an interesting article which appeared in the Sun, a publication from which I do not normally quote, and which is hardly known for its reliability. It carried a story on Wednesday 13 February 1985 under the headline:
The meanest mail. Lawson rapped by postie Celia. Exclusive.
Mr. Denis Budge, the journalist, wrote:
Postie Celia Mills delivered a rollicking yesterday to Chancellor Nigel Lawson — one of her customers — over his planned tax on postmen's tips. Celia, 52, stormed, 'I have never had a penny from him in the ten years I've been delivering letters to his country home.' The Inland Revenue will assume for tax purposes that posties pick up £150 a year in tips. But Celia said, 'In the past year I have had a total of £8'—
not £150—
'a box of biscuits and a pair of tights.' Mother-of-two Celia, who works as a £52-a-week part-timer in Stoney Stanton, Leicestershire, where the Lawsons own the old rectory, now plans to send a protest letter to the Chancellor. She said, 'I'm mad enough to bite his dog. I've always been civil to him but I'll just have to clench my teeth next time.' and Celia's husband Roy said 'His tax on phantom tips is diabolical'.
Why should the Treasury assume that everyone tips their postman at Christmas, when it seems that the Chancellor has not tipped his postman for 10 years?
Celia and her husband were not the only people to object. Along with the Union of Communication Workers, my hon. Friend the Member for Sheffield, Attercliffe (Mr. Duffy) also objected and he received a reply from the Treasury. The Financial Secretary, in an appendix to a letter dated 15 March 1985, conceded that the assessment of £150 was merely an estimate based on assumptions that subsequent returns from postmen showed in many cases to have been excessive. Equally, he accepted that in assuming that all postmen in an area received Christmas gratuities, the tax offices concerned had not followed departmental instructions. I would have thought that was a fairly grave admission to make. Will the Minister address himself to that statement in winding up the debate? What is he going to do about it? Does he intend to issue instructions to all his tax offices that they should not deem in this way? Postmen and postwomen throughout the country want him to take this decision. He has the opportunity to do so when he winds up the debate.

Mr. A. J. Beith: I am glad that this matter is on the Order Paper, because it exposes a piece of extraordinary behaviour by the Inland Revenue which caused great and justified offence to postmen and postwomen throughout the country. It demands some explanation from the Financial Secretary, who wrote to many of us on the subject. We all have copies of the letter which has been quoted. It came to the notice of postmen in the area I represent when a notice was circulated to all postmen and postwomen from the head postmaster reproducing the letter which he received from the Revenue. The letter said:
"POSTMEN/WOMEN—TIPS ETC
I understand that some, or all of your postmen/women may be in receipt of tips, (e.g. Christmas 'boxes')—whether in cash, or in 'kind'.
Such income is taxable under the provisions of the Taxes Acts.
Starting in April 1985 i.e. the tax year 1985/86, I propose to tax an estimated amount (150 per annum), by means of a deduction from the individuals' PAYE coding allowances …
Any individual who disagrees with his/her coding should contact Morpeth Tax Office".
This notice was circulated to postmen, who immediately wrote to Members of this House to protest. Many of them specified what they had received. Some of them pointed out that they worked in sorting offices and did not meet the public. Others pointed out the precise amount they received. One postman stated that he received £22, which was the highest figure quoted. I received a petition from 12 postmen who stated that not one of them had received more than £5 in tips in any recent Christmas.
If anything, the practice of giving postmen substantial tips at Christmas has declined along with the economic fortunes of the country and the financial security of many of the people to whom they deliver. This is not the mark of any lack of respect for the postman, who is one of he most popular figures in most of the communities in my constituency and the constituencies of many other hon. Members and whose personal service and attention is appreciated. In rural areas postmen frequently carry other messages and provide information and guidance, especially to the elderly. The postman is often the only caller of the day for many old people. He is the only person to whom they speak. He not only brings them their Giro cheques and news from their families but also gives them all kinds of advice and help.

Dr. Norman A. Godman: Is it not the case that many of our postmen and postwomen deliver mail in communities within which the people themselves are not in a position to give them gifts at Christmas or any other time of the year?

Mr. Beith: That is absolutely so. They may also be the most generous communities. A postman is often given a hot drink on a cold wet winter's morning in a house which can least afford to be generous with food or other facilities. People who cannot afford to be generous and hand out tips and extra benefits are none the less generous and appreciative of the postman's services. The amount of money assumed by the Revenue to be a reasonable estimate is many times higher than the top figure which any postman ever receives.
I took this up with the Chancellor and I was slightly taken aback to find that the first reaction was a letter from his private office saying that a report on the tax affairs of my constituent had been called for. My constituent was the secretary of the Union of Communication Workers, who sent a petition to me and had an investigation into his tax affairs for his pains. This merely revealed the truth of the case that we were advancing. I wrote back to the Chancellor and tried to remind him that this was not one individual problem but a general problem created by tax inspectors and a series of tax offices making completely unwarranted assumptions.
The upshot of all this was that, following correspondence between many hon. Members and the Financial Secretary, the Revenue revised its estimate and suggested that £30 was a reasonable figure. It is still wrong. There may be parts of the south-east where postmen pick up that sort of money regularly, but it is simply not so in many other parts of the country. That kind of money is not pressed into postmen's hands at Christmas time because it is not available or spare.
The Revenue has made completely unwarranted assumptions at every stage. I do not see why it felt compelled to handle the matter in this way. It would not have been difficult for it to have accumulated enough information, through discussions with the unions and inquiries at individual tax offices, to come up with a more reasonable suggested figure of, say, £10. That figure would still be challenged by many postmen, who do not get any tips if they are not in direct contact with the public, or who get hardly anything.
The new clause argues that the Christmas boxes and gratuities are, as has been argued by a judge in a court case, different from the regular tips that form part of the understood income of some people. That is so. We are not talking about the way that some people's incomes are made up by regular tips. I wish that that were not so.
It remains a degrading feature of our society that some categories of people still depend on tips for their basic income. We should try to cure that in our society. Everybody should be able to rely on his pay packet to give him a decent living wage. Whether somebody is a waiter, a buffet car attendant on a train or a hairdresser, to have to rely on tips and then get into a haggle with the Revenue about what he is actually receiving is not a fair way for somebody to be remunerated for a fair day's work.
That is a different issue from Christmas gratuities, which are much more limited than they may have been at one time in some parts of the country, and are confined to a limited number of people. Such gratuities are not

confined to postmen, and the new clause opens up other questions. The other category of regular house callers that comes to mind is dustmen. They serve us the year round doing an extremely unpleasant job and many people try to give them some recognition of that at Christmas.
If we pass the new clause, such other categories may be involved. I hope that the Minister will, as the hon. Member for Workington (Mr. Campbell-Savours) suggested, address his mind not to those whose income is substantially made up from tips but to those who often get only a tiny extra gratuity at Christmas from grateful customers, and on a scale about which we need hardly need be talking.
In my constituency, such tips are so small that they cannot be compared with the tax-free benefits that many other people enjoy, such as company cars, allowances available to Members of Parliament, or all sorts of things on which tax provisions are relatively generous. If a postman gets under £15 at Christmas by way of gratuities, the Revenue should not be involved. I hope that the Minister will be able to say that that will be so.
I hope, too, that the Minister will be able to bring some apology to postmen for the way in which the Revenue initially handled this matter. There should be some recognition that for most of the postmen, as for dustmen and others who occasionally get a Christmas tip, this is but a small bit of extra generosity from a limited number of people with which the Revenue should not be bothered.

Mr. John Golding: I hope that the Minister's officials do not listen to me tonight, because I have a confession to make. Every Christmas, I go around my constituency and see constituents whom I have helped in the previous year. I have an estimate here which shows that last year I received 45 mince pies, 12 pieces of Christmas cake, four jellies, two trifles and three glasses of ginger wine. I have not declared them in my income tax return.
My case is that the Chancellor of the Exchequer has not declared his Christmas boxes either. My guess is that he received his Japanese calendar, his Marconi calendar and his Boots desk diary, and if one looks at his tax return nowhere will one find those items recorded. He will say that these were Christmas boxes. He will say, "They were given to me because of my personal qualities." He deludes himself on that as he deludes the country on everything else. He will say, "I received those because of my personal qualities such as faithfulness, consistency and a readiness to oblige." There is no end to his ability to deceive himself and others. They are not taxable.
If I am wrong, may the Financial Secretary rise and say, "I have seen the Chancellor's tax returns and I know that every Christmas box he received has been duly entered and tax has been paid on it." But we know that is nonsense. We know that those in industry, those in high positions, do not record their Christmas boxes. They do not call them tips. When the Chancellor receives tips from different companies through the Members' post, he does not regard them as tips.

Mr. Sedgemore: Backhanders.

Mr. Golding: The right hon. Gentleman does not regard them as backhanders. He regards each gift as a friendly gesture, a Christmas box, not to be put down and


itemised in a column of figures to return to the Inland Revenue. He would regard himself as a Scrooge if he did that. He looks upon it as a friendly gesture and that is what the Christmas box for the postman is about. The postman is in a different category from the dustman. There are people who give the dustman a Christmas box because they think that more of their rubbish will be taken away. There are those who tip waiters. I can tell the House of my experience as a waiter, how I extorted tips from customers. People sometimes give tips to waiters because they are afraid of them, because they are embarrassed when they are with lady friends and do not want to be shown up by the waiter.
With the postman it is entirely different. There is no fear of not receiving service from the postman. You cannot buy additional service in this way, because the law says very specifically that your mail must be delivered. No discretion is given to the postman as to whether he delivers your letters. Does the Chancellor even think of giving the postman a tip? Mail is still delivered, free Christmas gifts and all, because the law says to the postman that he must deliver your mail. Therefore, there is no question of fear.
People give Christmas boxes to the postman because of the feeling of good will of the season. A payment for service is irrelevant. Those who argue that perhaps the assessment should be £10 are making an error. There should be no assessment at all. People give a Christmas box to the postman because it is part of our pattern of life. Gratuities are given to certain people at Christmas and they are given to the postman because he is "the friendly postman." People give them to a friendly familiar face; it has nothing to do with service.
The Government should accept the new clause and admit that it is niggardly, miserable and Scrooge-like to continue to tax Christmas boxes.

Mr. Harry Ewing: I declare an interest as a sponsored Member by the Union of Communication Workers and as a former postman.

Mr. Golding: A friendly face.

Mr. Ewing: As my hon. Friend says, a friendly face. I shall bring all my years of experience to the debate. My hon. Friend the Member for Workington (Mr. Campbell-Savours) got it right with his mixture of seriousness and farce. The hilarity that has entered the debate is appropriate, because the Government's proposal is a farce. For the Inland Revenue to suggest that postmen get anything like £150 at Christmas is one of the greatest farces I have ever heard of.
It may not be known to hon. Members that officers working in the post office in our Central Lobby were assessed as receiving £150 in tips. I see the Financial Secretary smiling; he obviously knows what happened. It was outrageous.
I am glad that my hon. Friend the Member for Newcastle-under-Lyme (Mr. Golding) took up a point made by the hon. Member for Berwick-upon-Tweed (Mr. Beith). It is obvious that the prospect of power is beginning to affect alliance Members — not that that prospect will ever materialise. I note that the hon. Member for Berwick-upon-Tweed moved away from his previous position of objecting to taxing the tips of postmen and postwomen and said that an assessment of £10 or £15 would be acceptable. The hon. Gentleman is obviously looking—

Mr. Beith: The hon. Gentleman misquotes me.

Mr. Ewing: The hon. Member said it. If he wishes to correct the record and to rescue himself, I will give way to him.

Mr. Beith: The hon. Gentleman misquotes me. I said that reasonable behaviour by the Inland Revenue in the first place might have been to offer an estimate of £10 or £15 and not £150. My argument was that £10 or £15 for the Revenue is not worth bothering about.

Mr. Ewing: The hon. Gentleman has confirmed the point that I was making, which was that £10 or £15 would be acceptable to him.

Mr. Beith: No.

Mr. Ewing: The hon. Gentleman suggests that that would have been reasonable behaviour. That suggests to me that the hon. Gentleman, who is not an unreasonable man, would not oppose what he regards as reasonable behaviour. The Liberal party has shifted its position.
As my hon. Friend the Member for Workington pointed out, Celia Mills has never had a tip from the Chancellor who is imposing this policy on postmen and postwomen throughout the country. I have experiences of Christmas tips and Christmas boxes. My tips did not amount to £150 in all the years that I worked for the Post Office — let alone total that amount in one year. I vividly remember one Christmas when I was on a rural delivery. My Christmas gifts amounted to one chicken which had been accidentally run over, 14 turnips, the promise of a load of manure for my garden — a promise which was never delivered. My other gifts included three pairs of socks and five dozen eggs. That was all after a year of running the farmer's children to the road end so that they could catch the school bus. Yet the Chancellor of the Exchequer suggests that postmen receive £150 each year in tips. The proposal is outrageous.
If the Financial Secretary has any common sense, he will throw away his silly briefing, which will undoubtedly be couched in highly technical language. It will no doubt argue that these are not tips or gifts and that the House should oppose the new clause. He should tell his civil servants to go and have an early night, and the Inland Revenue to concentrate more on the Lord Vesteys of this world. It is no wonder that the Chief Secretary is not replying to the debate. He congratulated Lord Vestey on defrauding the Inland Revenue of millions of pounds, yet he tells postmen that they must pay tax on tips of £150 a year.
Although we have treated the subject lightheartedly, postmen and women do not. Hundreds of them have had their weekly earnings reduced by £1 or £2 a week because of the Government's policy. It is nonsense to suggest that post office staff get tips all year round, because they do not. At Christmas and New Year they receive gifts, and the Inland Revenue has no right to tax them. I urge the Minister to exercise common sense, to speak for only a minute, and to accept the new clause.

Mr. Randall: My speech will be brief. The Inland Revenue has made a great big blunder on the issue of tips for postmen, and the way in which it deals with their tax assessments.
The role of the Union of Communication Workers in protecting its members is to be commended. It has done an extremely good job in bringing the matter to


everybody's notice. I am impressed by the way in which it has pressed the case and made the appropriate representations. We are concerned with a group of people on low incomes, who deliver mail in all weathers, often through snow and ice, and who often work through the night. They provide a good service and are admired by the British people. Yet the Government wish to tax a once-a-year gift which is given voluntarily in recognition of their wonderful service.
How did the Minister arrive at £150? I am sure that any assessment of tips would reveal an enormous discrepancy between those received in Guildford, which is in the affluent south-east, and those received in my constituency. How many postmen's rounds were considered? How many interviews with householders were conducted? The £150 is so arbitrary that I cannot see how the Minister justifies it.
10.30 pm
Is geography to be taken into account in tax assessments? The Government have muddled postmen with workers such as taxi drivers, hair dressers and people who work in restaurants, who regard tips as part of their regular income. It is inequitable of the Inland Revenue to include the once-a-year gift in the same category. Where will it end? If the Government go ahead with this outrageous step, what will happen to milkmen, and dustmen? I hope that the Minister will seriously reconsider the matter. People will regard these proposals as extremely unfair. The sum makes no difference to the Revenue, and no point of principle in financial terms is involved. I hope that the Minister will accept new clause 10.

Mr. Austin Mitchell: The main surprise of the debate is that the Financial Secretary has not already said that he will withdraw this provision so that we can avoid the necessity of voting against it and bringing down the Government and so that we can go home by 11 pm, content that we have saved the country.
The other big surprise is that, in the serried ranks of aspiring Parliamentary Private Secretaries, none has come out and defended what is being done. That is amazing for a party that will defend any iniquity and any folly. Treasury briefs have gone unread. What is being done here is an example of the Government's desperate trawl for money, which starts at the top with the flogging off of national assets and finishes at the bottom with the taxing of workplace nurseries and imaginary postmen's tips.
This is the thin end of the wedge. Where will it stop—dustbinmen's tips, milkmen's tips, the Parliamentary Private Secretary's tip from a grateful Minister at Christmas? Will it stop with presents for secretaries from Members of Parliament? The £150 has been plucked out of the air. I hope that the Financial Secretary will tell us what it is based on. Were postmen followed round by Inland Revenue officials counting every burp and estimating every mince pie and its value, counting every hiccough and estimating how many drams of whisky went into producing it and counting the amount of money that postmen are seen putting in their pockets as they come out of houses? How was this done? There is no evidence that 150 is anything like the figure that postmen receive. Were Treasury Ministers asked whether they gave enough to balance the Chancellor's meanness? If the Chancellor

gives any tip at all, it is simply despair. That is the appropriate tip to give when one considers his economic policy.

Mr. Sedgemore: It is done by MORI polls.

Mr. Mitchell: I shall not comment on MORI polls. It is ludicrous to set this figure because not all postmen receive Christmas boxes of any kind. The size of the Christmas box depends on the area that the postman serves. My experience as a postman is that the better Christmas boxes came from the humble working-class areas. In the middle class areas one would get a glint from steel-rimmed glasses and a mincepie handed over with forceps from some distance. The estimate must be calculated by area.
I believe that the tips should not be taxed. New clause 10 is worded to reflect the legal judgement in the case of Seymour v Reid in 1927 in the Appeal Court. A professional cricketer in the service of Kent county cricket club was threatened with taxation, but the judgment held that a sum given as a present in appreciation of the recipient's personal qualities, such as faithfulness, consistency and a readiness to oblige—the type of PPS qualities that the Government esteem — would not be taxable. Since the new clause has been cleverly worded by my hon. Friend the Member for Workington (Mr. Campbell-Savours) to reflect all those characteristics and that judgment, postmen's tips are better not taxed. I hope that the Financial Secretary will say that he will withdraw the proposal. It is petty and wrongly based, wrongly researched and bears no relation to the nature of the job. Has the great experiment of Conservative tax reform under the Chancellor come to these petty methods?

Dr. McDonald: My hon. Friend the Member for Falkirk, East (Mr. Ewing) described the realities of a postman's life at Christmas. That contrasts sharply with the letter from the inspector of taxes in Guildford saying:
The estimate of £150 for tips in the codings was calculated as 30p per house on a round of 500 homes over a 15 day period.
That assumption is absurd when postmen are given gifts in kind, promises of gifts which do not materialise and perhaps the odd pound. It does fit the sums, and the Chancellor did not chip in with his 30p contribution, but I shall not embarrass the Financial Secretary by asking him to comment on that story.
The Government's proposal also conflicts with the provisions in clause 42 which raise the limit for business gifts from £2 to £10. More exemption is allowed for a business than for postmen receiving a gift in recognition of the service that they have rendered and the qualities that they have shown throughout the year. That is utterly mean. It involves almost £1 per week in tax for postmen who have not thought to challenge the £150 assessment or whose appeals against it have failed.
The Financial Secretary knows that there is plenty of case law clarifying the amounts of money which count as gifts and are not subject to tax because they are given to help someone out or in recognition of personal qualities and distinguishing between cases of that kind and tips. All that the Financial Secretary has to do today is to say that he will end the nonsense of assuming that postmen receive 30p per house on a round of 500 homes over a 15-day period and insist that any benefits received by postmen — bearing in mind that they are not allowed to solicit gifts or to receive gifts at any time other than Christmas


—are regarded as gifts in recognition of the postman's personal qualities and friendly face and that they are not tips.
If the Financial Secretary will give us that undertaking we shall not need to divide the House and the matter will have been settled very quickly.

Mr. Moore: The charm of the hon. Member for Thurrock (Dr. McDonald), combined with the endearing comments of the hon. Member for Falkirk, East (Mr. Ewing) and others are an enormous temptation but Treasury reality holds me back. If hon. Members who are desirous of voting on this will listen to my explanation they may question whether they really want to vote for the new clause.
The new clause seeks to establish exceptional tax treatment for tips received by postmen at Christmas. I will deal with the technical defects of the amendment separately so as to help the hon. Member for Workington (Mr. Campbell-Savours) in any attempt that he may wish to make to return to the subject on a future occasion. First, however, I shall deal briefly with the arguments of principle.
It is difficult to see why postmen should be singled out for special tax treatment and not be taxed on their tips when other employees who receive tips at Christmas continue to be taxed on them. I shall come on to the assumptions in a minute, but in general tips are a form of income and as such it seems right that they should be taxed in the same way as the rest of the employee's income.
We would be unwise not to say so even if we did not believe it, and I certainly do believe it, but we all value the efforts of our postmen to get the post through in difficult conditions, especially at Christmas. The recollections of the hon. Member for Falkirk, East will live long in my memory. Nevertheless, it would not be right not to tax one form of income received by one group of people while others have to pay tax on all their income.
The amounts can be substantial. Some postmen clearly receive very modest amounts—I shall not go into details on an individual basis — but others have declared amounts of more than £250. [Interruption.] I am simply putting the facts on record as I am sure that the hon. Member for Workington would wish. Exempting that kind of income from tax would put postmen at an advantage compared with other employees.
As the hon. Member for Workington has said, the new clause arises as a result of the action taken by certain tax offices earlier this year to include an estimate of tips in some postmen's coding notices for 1985–86. I had hoped that the House would recall my reply on 1 April to a question from my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Merchant). I reported that in February some 15 of the 100 or so tax offices dealing with postmen had included an estimate of £150 for tips in 1985–86 coding notices. I am sorry to say that that was done without first checking with the postmen concerned whether tips were received and, if so, what amount. I very much regret the inconvenience and worry that that action caused the people concerned and I apologise once again on behalf of the Inland Revenue and myself. It was particularly unfortunate as long-standing guidelines make it clear that adjustments to coding notices in respect of tips should not be made until every possible attempt has been made to find out the facts. The Inland Revenue is sorry that the offices concerned acted contrary to those instructions

and has apologised. It has also taken steps to rectify the position by approaching the postmen concerned or their representatives to establish the facts and, where appropriate, to issue revised coding notices. Tax offices have been reminded of the instructions on taxing tips.

Mr. Fisher: Will the hon. Gentleman give way?

Mr. Moore: If the hon. Gentleman will forgive me, I shall not give way as I have been asked to be as brief as possible.
I shall not go into the relative position of other roundsmen such as milkmen, dustmen, and so on, but will deal with the essential point that the hon. Member for Workington raised so clearly and specifically at the beginning of the debate. Apart from the principles involved, the clause is defective and redundant. It seeks to exempt postmen's tips from tax but it is technically defective in the way in which it defines the tips that it seeks to exempt. The hon. Gentleman referred to one court case, but there are many others. The courts have already noted in cases dating back to the 19th century — [Interruption.] I am trying to put the facts on record in a matter which affects many men and women in this country.
10.45 pm
The courts have already noted in cases dating back to the 19th century that gifts and presents, as the hon. Member for Workington rightly said, given because of the personal qualities of an individual as an individual, are not taxable. They do not arise out of the employment, but because of the personal qualities of the person himself. But tips are usually given to postmen or other employees in return for being postmen. They are an extra reward for delivering the post, in a pleasant and helpful manner. I understand that the clause as worded probably would not exempt those tips. It would simply give statutory backing to the exemption under the ordinary rules of schedule E. As the hon. Member for Workington rightly said, the taxpayer has the commissioners and the courts to test that. That is what the courts of our land are for. The exemption is already enshrined in case law, for the non-taxability of the very few tips given because of a person's personal qualities.
Therefore, in essence, the new clause seeks to exempt what is almost certainly already exempt, while leaving—this is the critical point—taxed what I assume it seeks to relieve. I trust that the House will, while recognising the apology that I gave and the relevant facts in the past, not push the new clause to a Division.

Mr. Campbell-Savours: I do not wish to detain the House, but I have to say to my hon. Friends that the Minister's reply was spiced with the subjunctive mood of doubt. All the time he said, "might", "perhaps", or "could". That is not good enough. I call upon my hon. Friends to support my new clause in the Lobby.

Question put, That the clause be read a Second time:—

The House divided: Ayes 172, Noes 244.

Division No. 267]
[10.46 pm


AYES


Alton, David
Barnett, Guy


Ashdown, Paddy
Barron, Kevin


Ashton, Joe
Beckett, Mrs Margaret


Atkinson, N. (Tottenham)
Beith, A. J.


Bagier, Gordon A. T.
Bell, Stuart


Banks, Tony (Newham NW)
Benn, Tony






Bennett, A. (Dent'n &amp; Red'sh)
John, Brynmor


Bermingham, Gerald
Jones, Barry (Alyn &amp; Deeside)


Bidwell, Sydney
Kennedy, Charles


Blair, Anthony
Kilroy-Silk, Robert


Boothroyd, Miss Betty
Kirkwood, Archy


Boyes, Roland
Lambie, David


Bray, Dr Jeremy
Leighton, Ronald


Brown, Gordon (D'f'mline E)
Lewis, Ron (Carlisle)


Brown, Hugh D. (Provan)
Lewis, Terence (Worsley)


Brown, N. (N'c'tle-u-Tyne E)
Litherland, Robert


Brown, R. (N'c'tle-u-Tyne N)
Lloyd, Tony (Stretford)


Brown, Ron (E'burgh, Leith)
Lofthouse, Geoffrey


Bruce, Malcolm
McDonald, Dr Oonagh


Buchan, Norman
McKay, Allen (Penistone)


Caborn, Richard
McKelvey, William


Callaghan, Jim (Heyw'd &amp; M)
McNamara, Kevin


Campbell-Savours, Dale
McTaggart, Robert


Carlile, Alexander (Montg'y)
McWilliam, John


Clark, Dr David (S Shields)
Madden, Max


Clarke, Thomas
Marek, Dr John


Clay, Robert
Marshall, David (Shettleston)


Cocks, Rt Hon M. (Bristol S.)
Martin, Michael


Cohen, Harry
Mason, Rt Hon Roy


Coleman, Donald
Meacher, Michael


Concannon, Rt Hon J. D.
Meadowcroft, Michael


Cook, Frank (Stockton North)
Michie, William


Cook, Robin F. (Livingston)
Millan, Rt Hon Bruce


Corbett, Robin
Miller, Dr M. S. (E Kilbride)


Cowans, Harry
Mitchell, Austin (G't Grimsby)


Cox, Thomas (Tooting)
Oakes, Rt Hon Gordon


Craigen, J. M.
O'Brien, William


Cunliffe, Lawrence
O'Neill, Martin


Davies, Rt Hon Denzil (L'lli)
Park, George


Davis, Terry (B'ham, H'ge H'l)
Parry, Robert


Deakins, Eric
Patchett, Terry


Dewar, Donald
Pavitt, Laurie


Dobson, Frank
Pendry, Tom


Dormand, Jack
Penhaligon, David


Douglas, Dick
Pike, Peter


Dubs, Alfred
Powell, Raymond (Ogmore)


Duffy, A. E. P.
Prescott, John


Dunwoody, Hon Mrs G.
Randall, Stuart


Eadie, Alex
Redmond, M.


Eastham, Ken
Rees, Rt Hon M. (Leeds S)


Ellis, Raymond
Richardson, Ms Jo


Evans, John (St. Helens N)
Roberts, Allan (Bootle)


Ewing, Harry
Roberts, Ernest (Hackney N)


Fatchett, Derek
Robertson, George


Faulds, Andrew
Robinson, G. (Coventry NW)


Field, Frank (Birkenhead)
Rogers, Allan


Fields, T. (L'pool Broad Gn)
Rooker, J. W.


Fisher, Mark
Rowlands, Ted


Flannery, Martin
Sedgemore, Brian


Forrester, John
Sheerman, Barry


Foster, Derek
Sheldon, Rt Hon R.


Fraser, J. (Norwood)
Shore, Rt Hon Peter


Freeson, Rt Hon Reginald
Short, Ms Clare (Ladywood)


Garrett, W. E.
Short, Mrs R.(Whampt'n NE)


George, Bruce
Silkin, Rt Hon J.


Gilbert, Rt Hon Dr John
Skinner, Dennis


Godman, Dr Norman
Smith, C.(Isl'ton S &amp; F'bury)


Golding, John
Snape, Peter


Gould, Bryan
Soley, Clive


Gourlay, Harry
Stott, Roger


Hamilton, James (M'well N)
Strang, Gavin


Hancock, Mr. Michael
Straw, Jack


Hardy, Peter
Thomas, Dafydd (Merioneth)


Harman, Ms Harriet
Thompson, J. (Wansbeck)


Harrison, Rt Hon Walter
Thorne, Stan (Preston)


Hart, Rt Hon Dame Judith
Tinn, James


Haynes, Frank
Torney, Tom


Heffer, Eric S.
Wainwright, R.


Hogg, N. (C'nauld &amp; Kilsyth)
Wareing, Robert


Holland, Stuart (Vauxhall)
Weetch, Ken


Home Robertson, John
White, James


Hughes, Dr. Mark (Durham)
Williams, Rt Hon A.


Hughes, Robert (Aberdeen N)
Wilson, Gordon


Hughes, Roy (Newport East)
Winnick, David


Hughes, Sean (Knowsley S)
Woodall, Alec





Wrigglesworth, Ian
Tellers for the Ayes:


Young, David (Bolton SE)
Mr. Don Dixon and



Mr. John Maxton.


NOES


Aitken, Jonathan
Favell, Anthony


Alexander, Richard
Finsberg, Sir Geoffrey


Amery, Rt Hon Julian
Fletcher, Alexander


Arness, David
Forman, Nigel


Ancram, Michael
Forsyth, Michael (Stirling)


Ashby, David
Forth, Eric


Aspinwall, Jack
Fraser, Peter (Angus East)


Atkins, Robert (South Ribble)
Gale, Roger


Atkinson, David (B'm'th E)
Garel-Jones, Tristan


Baker, Rt Hon K. (Mole Vall'y)
Gilmour, Rt Hon Sir Ian


Baker, Nicholas (N Dorset)
Goodhart, Sir Philip


Baldry, Tony
Gorst, John


Banks, Robert (Harrogate)
Gower, Sir Raymond


Batiste, Spencer
Grant, Sir Anthony


Beaumont-Dark, Anthony
Greenway, Harry


Bellingham, Henry
Gregory, Conal


Bendall, Vivian
Griffiths, Sir Eldon


Bennett, Rt Hon Sir Frederic
Grist, Ian


Bevan, David Gilroy
Grylls, Michael


Biffen, Rt Hon John
Gummer, John Selwyn


Biggs-Davison, Sir John
Hamilton, Hon A. (Epsom)


Blaker, Rt Hon Sir Peter
Hamilton, Neil (Tatton)


Body, Richard
Hampson, Dr Keith


Bonsor, Sir Nicholas
Hargreaves, Kenneth


Boscawen, Hon Robert
Harris, David


Bottomley, Peter
Hayhoe, Rt Hon Barney


Bottomley, Mrs Virginia
Heathcoat-Amory, David


Bowden, A. (Brighton K'to'n)
Heddle, John


Bowden, Gerald (Dulwich)
Henderson, Barry


Boyson, Dr Rhodes
Higgins, Rt Hon Terence L.


Brandon-Bravo, Martin
Hind, Kenneth


Bright, Graham
Hirst, Michael


Brinton, Tim
Howard, Michael


Brown, M. (Brigg &amp; Cl'thpes)
Howell, Rt Hon D. (G'ldford)


Browne, John
Jenkin, Rt Hon Patrick


Bruinvels, Peter
Jones, Robert (W Herts)


Bryan, Sir Paul
Knight, Greg (Derby N)


Burt, Alistair
Knowles, Michael


Butcher, John
Lang, Ian


Butler, Hon Adam
Lawler, Geoffrey


Butterfill, John
Lawson, Rt Hon Nigel


Carlisle, John (N Luton)
Lewis, Sir Kenneth (Stamf'd)


Carlisle, Kenneth (Lincoln)
Lightbown, David


Carlisle, Rt Hon M. (W'ton S)
Lilley, Peter


Carttiss, Michael
Lloyd, Ian (Havant)


Cash, William
Lloyd, Peter, (Fareham)


Chalker, Mrs Lynda
Lord, Michael


Chapman, Sydney
Luce, Richard


Churchill, W. S.
Lyell, Nicholas


Clark, Hon A. (Plym'th S'n)
McCrindle, Robert


Clark, Dr Michael (Rochford)
McCurley, Mrs Anna


Clark, Sir W. (Croydon S)
Macfarlane, Neil


Clarke, Rt Hon K. (Rushcliffe)
MacKay, Andrew (Berkshire)


Clegg, Sir Walter
MacKay, John (Argyll &amp; Bute)


Cockeram, Eric
McNair-Wilson, P. (New F'st)


Colvin, Michael
McQuarrie, Albert


Coombs, Simon
Madel, David


Cope, John
Major, John


Corrie, John
Malins, Humfrey


Couchman, James
Malone, Gerald


Cranborne, Viscount
Maples, John


Currie, Mrs Edwina
Marland, Paul


Dickens, Geoffrey
Marlow, Antony


Dorrell, Stephen
Marshall, Michael (Arundel)


Douglas-Hamilton, Lord J.
Mates, Michael


Dover, Den
Mather, Carol


du Cann, Rt Hon Sir Edward
Maude, Hon Francis


Dunn, Robert
Mawhinney, Dr Brian


Durant, Tony
Maxwell-Hyslop, Robin


Eggar, Tim
Mellor, David


Emery, Sir Peter
Merchant, Piers


Evennett, David
Miller, Hal (B'grove)


Eyre, Sir Reginald
Mills, Iain (Meriden)


Fairbairn, Nicholas
Mills, Sir Peter (West Devon)


Fallon, Michael
Miscampbell, Norman






Mitchell, David (NW Hants)
Raison, Rt Hon Timothy


Moate, Roger
Rees, Rt Hon Peter (Dover)


Montgomery, Sir Fergus
Rhodes James, Robert


Moore, John
Rhys Williams, Sir Brandon


Morris, M. (N'hampton, S)
Ridley, Rt Hon Nicholas


Moynihan, Hon C.
Ridsdale, Sir Julian


Mudd, David
Rifkind, Malcolm


Murphy, Christopher
Robinson, Mark (N'port W)


Neale, Gerrard
Roe, Mrs Marion


Needham, Richard
Rossi, Sir Hugh


Nelson, Anthony
Rost, Peter


Newton, Tony
Rumbold, Mrs Angela


Nicholls, Patrick
Ryder, Richard


Osborn, Sir John
Sackville, Hon Thomas


Ottaway, Richard
Sayeed, Jonathan


Page, Sir John (Harrow W)
Shaw, Giles (Pudsey)


Page, Richard (Herts SW)
Shaw, Sir Michael (Scarb')


Parris, Matthew
Shelton, William (Streatham)


Patten, Christopher (Bath)
Shepherd, Colin (Hereford)


Patten, J. (Oxf W &amp; Abdgn)
Shepherd, Richard (Aldridge)


Pawsey, James
Shersby, Michael


Portillo, Michael
Silvester, Fred


Powell, William (Corby)
Sims, Roger


Powley, John
Skeet, T. H. H.


Prentice, Rt Hon Reg
Smith, Tim (Beaconsfield)


Price, Sir David
Speed, Keith





Speller, Tony
Tracey, Richard


Spencer, Derek
Trotter, Neville


Spicer, Jim (W Dorset)
van Straubenzee, Sir W.


Squire, Robin
Vaughan, Sir Gerard


Stanbrook, Ivor
Wakeham, Rt Hon John


Stanley, John
Walker, Bill (T'side N)


Steen, Anthony
Walker, Rt Hon P. (W'cester)


Stern, Michael
Wall, Sir Patrick


Stevens, Lewis (Nuneaton)
Waller, Gary


Stevens, Martin (Fulham)
Ward, John


Stewart, Allan (Eastwood)
Wardle, C. (Bexhill)


Stewart, Andrew (Sherwood)
Watson, John


Stewart, Ian (N Hertf'dshire)
Watts, John


Stokes, John
Wells, Sir John (Maidstone)


Stradling Thomas, J.
Wheeler, John


Taylor, John (Solihull)
Whitfield, John


Taylor, Teddy (S'end E)
WoIfson, Mark


Temple-Morris, Peter
Wood, Timothy


Thompson, Donald (Calder V)
Yeo, Tim


Thompson, Patrick (N'ich N)



Thorne, Neil (Ilford S)
Tellers for the Noes:


Thurnham, Peter
Mr. Tim Sainsbury and


Townend, John (Bridlington)
Mr. Michael Neubert.

Question accordingly negatived.

Orders of the Day — Finance Bill

New Clause 11

SUPPLIES OF SERVICES AND TRANSACTIONS BY TRADERS

Services supplied or transactions carried out by a trader shall be treated as taking place at whichever is the earliest of the following times:

(a) when the payment in respect of those services or transactions is received in the trader,
(b) when the trader issues a tax invoice in respect of them, or
(c) the day when the trader ceases to trade.'. — [Mr. Campbell-Savours.]

Brought up, and read the First time.

Mr. Campbell-Savours: I beg to move, That the clause be read a Second time.
I propose this measure on behalf of hundreds of thousands of business men who, if they knew what I am about to reveal, would be most concerned about the legislation penalising their position.
I must express my indebtedness to my hon. Friend the Member of Sedgefield (Mr. Blair) whose revelations during the Committee debate in the Finance Bill interested my colleagues to such an extent that we were able to identify a special tax concession which has been provided to barristers and which was passed in 1981 without parliamentary debate. None of us knew anything about the concession until my hon. Friend brought it to our attention. His sense of objectivity outweighed his commitment to the Bar, and that must be the mark of a truly great parliamentarian.
11 pm
I must tell the House that the new clause is defective. It follows exactly the wording of the concession that was given to barristers under the VAT (General Regulations) 1980, of which section 20 states:
Services supplied by a barrister, or, in Scotland, by an advocate, acting in that capacity, shall be treated as taking place at whichever is the earliest of the following times:—

(a) when the fee in respect of those services is received by the barrister or advocate;
(b) when the barrister or advocate issues a tax invoice in respect of them; or
(c) the day when the barrister or advocate ceases to practise as such."

That provision enables barristers to enjoy the concession.
We are examining a privilege. We have privileges in education, housing and employment and here we have a privilege in taxation. That privilege provides that a barrister does not have to pay VAT to Customs and Excise until he has claimed in turn from his own client. That is a special concession. All other traders are required to pay VAT to Customs and Excise within a maximum of three months after they invoice their clients. Barristers are in a special position. In justifying the concession, Customs and Excise states:
Unlike other 'tradesmen', barristers do not have the option of taking clients to court in order to recover unpaid fees. Although it might be said that the practical disadvantage of not being allowed to sue compared with the privilege of being allowed to sue someone who has not paid a debt—presumably because there is no money with which the debt can be paid—my be slight".
That is how Customs and Excise justifies the concession.
The hon. Member for Corby (Mr. Powell) was far more interesting in his intervention in the debate that took place

in Committee on this issue. He gave us the real reason. He did so when it was necessary for someone to come to the aid of the Chief Secretary to the Treasury to explain to the Committee what the concession was all about. The right hon. and learned Gentleman did not know the reason at that moment for its introduction. The hon. Gentleman said:
The special concession negotiated by the Bar when VAT was introduced in 1972 or 1973 arose because a portion—about 40 per cent. — of practising barristers relied almost entirely on legal aid fees for their income. Unlike other fees which other members of the Bar may receive, legal aid fees are not negotiated in advance. They are all determined by taxing officers of the courts in arrears. Therefore, when the work is done, the fee is unknown and may be unknown for a long time.
However, a difficulty arose in that in order to secure taxation of a legal aid fee, barristers' clerks had to submit an invoice to taxing officers of the courts which would essentially be a negotiating ploy. In my experience, not once has a fee which my clerk has asked for been accepted by the taxing officers of the courts …
That means the invoices did not necessarily relate to the fee that was subsequently paid. Of course, if the invoice issued became the basis for VAT, it would be paid not on the basis of the fee subsequently taxed and paid, but on the fee on the invoice that was essentially a negotiating point. I believe that it was to get round this difficulty that the commissioners of Customs and Excise made a special concession to the Bar."
I think
he said — this will interest the hon. Member for Croydon, South (Sir W. Clark), who takes a great interest in these matters—
that this is a unique concession." [Official Report, Standing Committee B; 23 May 1985, c. 238.]
The hon. Member for Corby said that to send the invoice is a negotiating ploy. He then implied that there is no connection between the submitted invoice and the settlement. If so, let the order be modified to provide for an adjustment, thereby securing early payment in line with the practice for other traders. The Minister, whose letter on that very point I received this morning, said:
It would in theory be possible for a barrister to account for tax on a provisional estimated basis and make any adjustment in subsequent tax periods but this would be an undesirable adminstrative complication both for him and Customs and Excise.
How convenient an answer that is.
This is a very Socialist new clause. It extends this privilege to everybody.
In another new clause which unfortunately was not selected, although I can refer to its contents because it relates directly to the new clause that was selected, I identified over 100 groups of people who would benefit if this new clause were to be accepted. They are glassblowers, travel agents, accountants, jugglers, musicians, conjurers, impresarios, income tax advisers, composers, knife and scissor sharpeners, thatchers, tea blenders, peat cutters, bagpipe makers, turf cutters, holiday flatlet operators, hoteliers, estate agents, architects, sculptors, experimenters on embryos, paper-makers, marble converters, printers, metal bashers, wood carvers, goldsmiths, silversmiths, potters, masseurs, stonemasons, painters and decorators, enamellers, dressmakers, clothes designers, lithograph artists, fly tiers, acrobats, illustrators, farmers, smelters, picture restorers, fencers, metal polishers, soldiers, buskers, cobblers, remunerated after dinner speakers, shepherds


and goatherds, odd-job men, weavers, spinners, steel stock holders, hand glove makers, shirt makers, carders and cads, clockmakers, value added tax advisers, marine pilots, plumbers, electricians, undertakers, furniture restorers, joiners, bricklayers, plasterers, butchers, bakers, candlestick makers, professional mechanics, welders, wheelwrights, scrap metal merchants, ships' chandlers, turners, millers, glaziers, hauliers, gardeners, agriculturalists, tattooists, refuse disposal traders, deep sea fishermen—that will appeal to my hon. Friend the Member for Great Grimsby (Mr. Mitchell) — inshore fishermen, French polishers, upholsterers, totters, freelance journalists, scaffolders, boat builders, professional athletes, carpet layers, roofers, tailors, sausage makers, strippers, horse traders, horse trainers, surveyors, quantity surveyors, photographers, bailiffs, fish smokers, cheesemakers and organ grinders. All of these groups would benefit, as would many other groups. This is a very charitable and Socialist new clause because it extends a substantial privilege enjoyed by barristers to many groups of people, many of whom live in my constituency.
Other organisations have an interest in this new clause. They do not accept that it would meet their objectives, but they recognise that although it is defective the Minister of State, Treasury could table his own substitute new clause tomorrow morning, as the Finance Bill is to be debated again later that day.
The Institute of Chartered Accountants is concerned about the cash flow problems of small businesses, which must pay VAT to the authorities prior to its collection. That body said in a submission to Lord Young in response to a Government document entitled, "Burdens on Business":
VAT is a major cash flow item in small business. The current system of VAT outputs, being based on the date of supply, can adversely affect a business which gives credit. In certain cases, the supply of a service or goods will have taken place, but no money received, before the VAT on that service must he forwarded to Customs and Excise. Such payments are often funded by a bank overdraft at considerable cost to the business. We would urge that consideration be given to a method where small businesses might elect to put VAT on a cash received/cash paid basis. Small businesses could account on a cash book system and would thus be saved the burden of keeping additional records for VAT purposes. We acknowledge that this may be one area where to realise the benefits, an element of positive discrimination towards the small business would be involved.
That, I am told, is what Government policy is all about. In a debate a week or so ago the Government talked about the need to discriminate positively in favour of small business wherever possible. This is their opportunity to do that. The institute added:
A monthly payment plan for VAT would need to avoid the additional complexity of monthly returns and would be unattractive if it had an adverse effect on cash flow. While there may be ways of deferring payment, we see some difficulty in including the suggestion as part of a package designed to improve the lot of small businesses.
Again, the institute expressed reservations about the way in which VAT operates under present arrangements.
I accept that my new clause has a defect. That is because it has been transposed from the original 1980 regulations. That has been done to show the many small business organisations that one group of people have a concession. I do not object to that, because I regard it as a reasonable concession for them to have. Indeed, on a free vote, many hon. Members would probably vote for that concession to be extended in the way I have suggested. I

do not know how much that would cost. But if the Government reject the new clause on the basis of cost, they must consider the effect that implementing it would have on the cash flow of many small businesses. They, too, need the money.

Mr. Austin Mitchell: My hon. Friend the Member for Workington (Mr. Campbell-Savours) described the origin of the new clause. It arose in Committee upstairs, where it emerged that barristers were not subject to the same requirement as small business in the case of bad debts. Where a business man is not paid, he must still pay the VAT on what he would have been paid. That does not apply to barristers.
Understandably, that caused a certain embarrassment in Committee because, after all, we have in office a Government of barristers, for barristers, by barristers. I am not sure how many barristers there are in the Cabinet turning their knowledge of the law to applied economics, but some embarrassment was caused for the Government because it is clearly wrong to have one law for barristers and one for small business men, the latter having the much more stringent requirement to pay VAT on other people's bad debts. If it is good for small businessmen to pay it, barristers should pay it too. They should be subject to exactly the same requirements, rules and regulations.
There should not be what amounts to a secret distinction. I hope that the Minister, in winding up this dynamic and hard-fought debate, will tell us about the origins of this concession and what happened before the 1980 regulations. Is it a long-standing concession to barristers? Our impression is that it is of much longer standing than the 1980 regulations. Can the Minister say why it was brought in? It emerged entirely by accident. It has not been publicised. It looks like a secret concession which has been kept from small businessmen who have been complaining for years about the iniquity of having to pay VAT on bad debts. The argument is that this concession should either be abolished or extended to everybody. There cannot be a fairer principle than that. There is no reason why one section of society should be singled out in this fashion.
The concession in the 1980 regulations applies only to barristers. Our amendment seeks to apply it to everyone. That is the simplest and most straightforward principle. We asked in Committee for an explanation of what was being done, why it was being done, who it extended to and what was the basis of it. We quickly received art explanation from the House of Commons Library which provided the basis of our amendment. It is fair to say that the explanation promised from Treasury was very slow to reach us. It is dated 9 July 1985 and it reached my hon. Friend only today. It is obviously a last-minute attempt to catch up, which puts Opposition Members at a certain disadvantage in dealing with it. Being extremely well organised, with an enormous research staff, I have not yet received the letter. Doubtless they are falling over each other to bring it to me or clambering outside the Chamber with it. It is not right that we should receive it immediately before the debate when we have to put down amendments in advance. Had it not been for the diligent efforts of the House of Commons Library we would not have been able to do so. It is curious that the explanation should be so late, because it comes from the Chief Secretary who, as a barrister, one understands, is returning to practise that profession in the forthcoming reshuffle, must have a


peculiar interest in these matters. It is a concession from which he might well benefit in his occupation to which, one discovers from reading the papers, he is about to return.
The explanation in the letter is simple. It states:
The law covering the matter is Regulation 20 of the Value Added Tax (General) Regulations 1980 … In practice this allows barristers (and advocates in Scotland) to account for tax on their services when they receive payment of their fees since their is no requirement on them to render VAT invoices within a specified period of the completion of their services.
This is a requirement that affects most other traders and which means that they do not get paid. Having put in the invoice they still have to pay VAT within the requisite period. The letter continues:
This special VAT regime for barristers was justified on two main grounds. First, in a substantial proportion of their work, fees are not fixed in advance of or at completion of the service.
It is an extraordinary situation. It is common to some other occupations like oriental bazaar keepers. As the letter states:
 … fees are not fixed in advance of or at completion of the service but are open to negotiation after the event.
I imagine that is not correct, but this is the assertion. The letter continues:
In particular in legal aid cases barristers' fees are neither determined nor paid before the matter has been considered by the Legal Aid Committee and a precise figure has been certified.
The question arises, what proportion of barristers' fees are legal aid cases? The overall figure may be 40 per cent. but that can vary widely among barristers, particularly as they work in different fields. In some sectors—company law, for instance—it is almost certainly a minute proportion of the income of barristers. On the basis of a justification based on the income of a minority of barristers, the concession has been extended to all barristers, against the general run of the law for small business men.
The letter continues:
Secondly, unlike the generality of other unregistered persons, barristers are not permitted to sue their clients for nonpayment of fees.
That is a decision made by the barristers themselves. They can change that easily by a simple decision of the Bar Council, and could start suing those who do not pay their fees. It is ludicrous to make a voluntary castration and then complain. The decision is in the hands of the barristers. It is therefore wrong to make it the basis for a concession such as this.
The letter goes on:
I think that on reflection you will agree that these two factors taken together"—
they are different excuses for the same thing. They are not cumulative reasons but separate and distinct reasons—
do put barristers in a special position. For them it is not so much insufficiency of funds being a reasonable excuse for inability to pay the tax when due—which was the matter under debate in Clause 32"—
That is a side issue. We are talking about the iniquity of the requirement that VAT shall be paid on debts—
but an inability to know precisely how much VAT is due because of the uncertainty about the actual level of the fee. It would in theory be possible for a barrister to account for tax on a provisions estimated basis and make any adjustment in subsequent tax periods".
That is what we would like to see happen. However, the letter says:
this would be an undesirable administrative complication both for him and Customs and Excise.

In any event the receipt of payment tax point is not unique to barristers.
We were told that this was unique to barristers but it now emerges that retailers effectively enjoy this privilege.

Mr. Campbell-Savours: The communication does not quite say that. It does not say that they enjoy the same facility under the same concession. It is that the effect may be the same, for other reasons.

Mr. Mitchell: I agree, but the letter says that retailers effectively enjoy the facility because they are paid cash on the point of purchase
as do people supplying continuous services or services where stage payments are the norm … Some people also have the facility to account for tax on a cash received basis with no compulsion to issue a VAT invoice in advance of payment.
That dodges the issue, which is the distinction between barristers and other small business men, who have to pay tax on debts that they will not be repaid. Even though the money has not been paid to them, and the companies to which they have supplied the goods have gone bust, and they cannot be paid, they have to pay the VAT on the money that they are not getting. It is an unfair system, and if there is any justification for it, it should be universal. There is no justification for excusing barristers.
Therefore, we need information from the Minister. If the inability of barristers to sue for debts is to be used as justification for this concession, can we know what in what proportion of cases barristers do not get paid for their services? What is the proportion of debts owing to barristers? What does their inability to sue for debts mean as a justification for this concession?
We need to know why the concession has been extended to barristers, and not to the other small business men. We are talking, in the case of barristers, about a sizeable business. The estimates of barristers' incomes vary widely—anything between £100,000 and £250,000 a year. I discount the claims of incomes of £1 million a year. A quarter of a million pounds a year is not uncommon. This puts them in a fairly sizeable lead in the business table. We are talking about much smaller businesses with much smaller income which are having to cripple themselves to pay VAT on debts they are not receiving. The real criterion should be, as we were debating in the Committee, inability to pay. A businessman should not have to pay VAT on a bill which is not paid.
Why should there be this distinction between barristers and others? Why not accept the principle of our amendment, which is simply to extend this concession to a unique and very privileged section of society to the whole of small business?

Mr. William Powell: Unlike the hon. Member for Great Grimsby (Mr. Mitchell) I shall be brief. Little did I expect to hear the hon. Member for Workington (Mr. Campbell-Savours), who so admirably opened the debate, advocate an extension of VAT to, of all people, experimenters on embryos. Conservative Members had come to look upon the hon. Gentleman as a robust supporter of the right to life, and now to find him advocating this extension comes as a considerable shock to us.
The hon. Member was generous enough to read out the point of order which I made during our discussion in Committee and I was amazed by how lucid it sounds or how lucid he made it sound. There are few changes I want


to make, except that, having said there was "no relationship" between the invoice and the negotiating ploy made by barristers' clerks to the taxing authorities, I wish to amend that to "little relationship."
The hon. Member for Great Grimsby has few admirers in the professions and the House knows that I and a number of other hon. Members are members of the Bar. However, one of his current campaigns has drawn a favourable response in the Temple. That is the idea that barristers should be able to sue for their fees. I hope in due course, if he is able to put his case with a great deal more charm than he has managed so far, he will be able to secure that valuable change in the law. The hon. Member for Great Grimsby was wrong in law in at least one of his contentions. It is not possible for the Bar Council simply by fiat or motion to change the common law of this country. It is the common law of this country that prevents barristers from suing for their fees. It would therefore not be possible for the Bar to change the rule on its own, and because of the venerability of this part of the common law, it would be necessary for Parliament by legislation to change it.
I quite understand the argument of the hon. Member for Workington. It has a certain logic within it, but there is perhaps a better way of dealing with this. I would urge my right hon. Friend the Minister of State to consider pursuing the matter with our noble Friend the Lord Chancellor. This is a unique concession to barristers. I say to the hon. Member for Great Grimsby and the hon. Member for Workington that, though it may have been incorporated in statute in 1980, it goes back to the introduction of VAT in 1972, and this practice has always applied to barristers' fees. There was nothing innovatory about what happened in 1980: that merely continued existing practice.
I am certain that barristers who receive legal aid fees, as a substantial number of the members of the Bar do, would welcome it if the legal aid taxing authorities provided that the fees should be fixed in advance, rather than negotiated in arrears, as happens currently. The concession would not then be necessary.
I note that the hon. Member for Sedgefield (Mr. Blair) is on the Opposition Front Bench. He shares these problems with me, my hon. and learned Friend the Member for Leicestershire, North-West (Mr. Ashby) and one or two other hon. Members. Those hon. Members know that the change that I have suggested would receive a loud and warm welcome in the Temple. I urge my right hon. Friend the Minister of State to take it up with the Lord Chancellor.

Mr. Blair: My hon. Friend the Member for Workington (Mr. Campbell-Savours) was kind enough to say when moving the new clause, which was obviously drafted by a supporter at the Bar, that I was the origin of the proposal.
I should say to my hon. Friend the Member for Great Grimsby (Mr. Mitchell), who criticised barristers, that I made an open avowal of the privilege without its being sought. My hon. Friend the Member for Workington said that that showed an admirable commitment to objectivity. That is probably excellent for one's reputation as a parliamentarian but fatal to one's prospects in a political career.
There are two problems. The first is whether there should be discrimination in dealings between some traders

—the Bar is one such trade — and others. The less discrimination there is the better. It should he pointed out that, because people make purchases from retailers and pay at the time, the retailer's liability to pay VAT arises when the payment is made. The privilege exists for a variety of transactions, but that arises of necessity and because of the type of business involved.

Mr. Austin Mitchell: The privilege is pleaded on the basis of two justifications that apply only to the law. The situation may be the same for retailers, but that is only because they exchange cash at the point of sale and there is no procedure for invoicing.

Mr. Blair: That is exactly what I said. There are circumstances other than those applying to the Bar where VAT liability arises at the same time as payment is made to a trader.
The more important problem, which is particularly acute for small traders, is that businesses are liable for VAT when they have issued an invoice, even though they have not received payment from the customer. The small builders' federation has pointed out that solvency problems can arise for small companies that have to meet VAT liabilities when they have not received payment from customers. That is the most important issue in the debate. If the Pavlovian reaction to barristers has sparked off the debate, it has been worth while.
The Government should look carefully at the difficulties facing small traders who run into difficulty over VAT payments. A small builder may do work costing £15,000 or £20,000 and the VAT liability could be quite large. Cash flow problems are fairly common when traders are involved in such transactions.
Perhaps a better solution would be to give more discretion to the commissioners to allow an easing of the burden of VAT payments when difficulties arise from a default by a customer. Subject to the amendment being selected, we shall debate the bad debt provisions, which will allow an insufficiency of funds arising directly from default by a customer to be considered when the penalty is being decided.
The Government should study the matter. Many traders find it hard to see why they should have to pay money, which they are supposed to pass on from their customers, when they have not received that money. The Government would do small businesses a service and justice, if they found better ways of ensuring that both the tax was properly collected and the interests of small businesses were protected.

Mr. Hayhoe: I should begin by declaring a non-interest in that I am not a lawyer, but an engineer. My speech may well be better for that.
The new clause would allow all traders to account for VAT on a cash-received basis so that everyone would receive the treatment that barristers already enjoy under regulation 20 of the Value Added Tax (General) Regulations 1980, which is statutory instrument 1536/80. Although barristers are enjoying VAT under that statutory provision, I confirm that they have always enjoyed those arrangements under earlier statutory instruments, as my hon. Friend the Member for Corby (Mr. Powell) pointed out. We should also note that during the Labour Government the same writ ran.
The hon. Member for Workington (Mr. Campbell-Savours) also seeks to eliminate any injustice for traders


in having to account for tax which they have not received and may never receive from their customers, as the hon. Member for Sedgefield (Mr. Blair) pointed out. At least some amelioration is contained in clause 32, where important changes have been made regarding bad debts and where links are made with insolvency legislation. Moreover, if amendment No. 175 is selected, it will allow a more precise debate on that aspect.
As the hon. Member for Workington acknowledged, his new clause is technically deficient. It would, radically alter the present arrangements, in which the tax invoice is the essential standard under which VAT is charged and accounted for. However, the tax invoice is also important for the registered customer because until he holds the supplier's tax invoice, he cannot deduct or reclaim the tax that he is being charged. The House should note that our debate has been about paying the tax, while no consideration has been given to the important matter of reclaiming or setting against the tax to be paid, the input tax that has already been paid by the individual concerned.
The scheme proposed in the clause would devalue the tax invoice because businesses would want to defer their liability to account for output tax, until they collected the tax from their customers. Therefore, they would not issue tax invoices until they received payment. There would be a corresponding disadvantage for the customer, especially one receiving regular repayments of tax in monthly tax periods, because at present he can deduct or reclaim VAT charged as input tax before he has paid for the supply, provided he holds a valid tax invoice. Under the new clause the customer would not be likely to receive his tax invoice until after he had paid his supplier. There is an up side and a down side, as so often applies to changes in tax regimes.
The suggested scheme would have a profound effect upon the cash flow of most businesses. There would be some gainers and some losers. Retailers and repayment traders — that is, exporters or businessmen such as farmers trading mainly in zero-rated goods — would be substantial losers. Retailers would lose because their input tax deduction would be deferred until after they had paid their suppliers, but they would gain nothing on their output tax because they already account for tax on the basis of daily cash receipts. Repayment traders would similarly lose on the input tax deferment, but have no corresponding output tax deferment because no tax is chargeable on most of their sales.
I hope that I have said enough to explain that considerable complexities are involved in making changes along the lines suggested. This is not the time for me to try to deal with matters other than those before us. We have to consider many new clauses. It is fascinating to listen to the contributions to the debate, but it has gone wide of the subject.

Dr. Marek: Can the Minister say anything about the merits of at least bringing in line the special concessions to barristers? What can be said about equality of treatment in terms of fiscal neutrality?

Mr. Hayhoe: I have tried to explain the difficulties for the trading community if we adopted the sentiments behind the new clause. I have not argued the case on the basis of the defective technicalities.
The question of barristers is an aside in relation to the new clause. I have only added to the observations made by the Chief Secretary in the letter to which referrence has been made. If necessary I shall arrange for a copy of that letter to be put in the Library.
I hope that the hon. Member for Workington will not press his new clause to a Division. He has ventilated the subject and my hon. Friend the Member for Corby has been given the opportunity to make an important suggestion to the Lord Chancellor which I shall pass on.

Mr. Campbell-Savours: The Minister's answer was complex and I confess that after about five minutes I could not grasp what he was saying and lost the thrust of his argument. I am sure that other hon. Members feel the same.
The Minister might well have made an important statement. I should like to consider it tomorrow and perhaps raise the matter later after taking advice. We have raised an important issue. Many people are interested in the concession which barristers enjoy. We should like it to be extended to others. Our new clause is defective and so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 25

RELIEF FOR TECHNICAL EDUCATION AND DEVELOPMENT

'Insert a new section in the Taxes Act 1970, No. 192 (A):
(1) Subject to the following provisions of this section, payments made in any year of assessment by an individual out of the emoluments of an office or employment may be deducted in assessing those emoluments for that year if made for the purposes of subsection (2) below.
The payments must be made in exchange for technical education which is related to any services offered by members of any body of persons approved for the purposes of section 192.
(3) The technical education is related to the employer's trade, profession or vocation if it is either

(i) in the case of a student, of a type whose content will enable the student to take examinations leading to technical qualifications, or
(ii) in the case of a member, or a type qualifying towards the annual continuing professional development requirement of the body concerned.

(4) The technical education must:

(i) be of assistance in performing the duties of all employment with that trade, profession or vocation, and
(ii) if it had been incurred by the employer, have been allowable in computing the profits of his trade, profession or vocation under section 133 of the Taxes Act 1970".'.—[Sir W. Clark.]

Brought up, and read the First time.

Sir William Clark: I beg to move, That the clause be read a Second time.
New clause 25 concerns technical education. There is great emphasis on training these days and many people take correspondence courses. It is essential, if at a polytechnic or university, to attend classes, but it is not always possible to attend classes when working. The flexibility afforded by being able to study at home is therefore a great thing.
11.45 pm
My suggestion is that if a person pays tuition fees for a course related to his trade or industry, such expenditure should be allowed for tax purposes, just as it would be if it were paid by the employer. The employee would pay 70


per cent. of the fees and the Exchequer would pay 30 per cent. I estimate that the total cost of fees would be £2 million. Not everyone would claim relief as many people who attend such courses are not in work and would therefore not be covered. I therefore suggest that the scheme would cost no more than £600,000.
It is essential that there be as much training and retraining as possible. The Government ought to do everything to assist, and my proposed concession would be cheaper than setting up colleges or a state scheme which means that the taxpayer has to foot 100 per cent. of the bill. It is essential to expand technical education and I trust that my right hon. Friend will consider the new clause sympathetically.

Dr. Marek: I favour the aims of new clause 25, but I am a little worried, as some courses or conferences are not all that they seem to be. Exorbitant fees are charged and yet the conferences do not really benefit those who attend them, at least not in terms of education.
I hope that the hon. Member for Croydon, South (Sir W. Clark) can assure me that such courses will be excluded. If they are, and the new clause concerns courses that people work hard on, I welcome it. There might be difficulty with the Treasury finding the money to give relief, and pressure for relief in other areas. I hope that there will not be a loophole.

Sir William Clark: The course must comply with section 192 of the Taxes Act 1970. The expenditure must be of a type which, if incurred by the employer, would be allowed for tax purposes. The hon. Gentleman's reservation is misplaced. We do not want any loopholes. It must be genuine technical education. It is not beyond the wit of the Treasury to rephrase the new clause if it is defective.

Dr. Marek: That was not a reservation on my part. I was simply asking a question because I did not know the answer. I accept the assurances from the hon. Member for Croydon, South and I await the Minister's comments.

Mr. Maxton: I had some sympathy with the new clause when I first looked at it, but I quickly lost that feeling of sympathy when the hon. Member for Croydon, South (Sir W. Clark) said that the proposals would be a cheaper way to provide further qualifications than state-funded courses.
The hon. Gentleman suggested that those who were better off and who could afford to pay fees of £600 would be able to do these courses and gain tax relief on the expenditure. Many other people would like to improve their qualifications, their lifestyles and their skills, but they do not have adequate income to allow them to pay those fees. The state ought to provide free courses for those people.
Open university courses are divided between those deemed to be technical and those which are not. Some courses are funded by employers, but these are not always the technical courses. What is the tax position of the non-technical courses?
Teachers take part in such non-technical courses and represent a large group within the Open university. Many teachers with diploma qualifications to teach in primary or secondary schools in England or Wales — primary schools only in Scotland—wish to obtain a degree from the Open university. Their local authorities agree that it

would be right, good and proper that they should be graduate teachers rather than diploma teachers and are prepared to pay their fees to allow them to obtain that qualification. They even pay for the teachers to go on the summer courses and provide a daily allowance.
Can the employer claim assistance against tax if the employer is a local authority? If the local authority will not pay the fees, will a teacher who tries to upgrade his qualifications from his own resources be able to reclaim tax on the fees? Does the new clause cover that? As the Minister is not responding, I presume that he does not know the answers to my questions.
My main objection to the new clause is that technical training and people's ability to change their skills should not have to be paid for by the individual. In a society that is changing as dramatically as ours, we need people to change and to acquire new skills.

Dr. Marek: I agree entirely that the state should provide an education covering all aspects of life in the community, but there are certain types of specialist education from which employers would like their employees to benefit. Would there not be some advantage in encouraging employers to allow their employees to acquire that specialist education? I can imagine circumstances in which that might be useful, but I have not studied the new clause in depth and am certainly open to persuasion by my hon. Friend.

Mr. Maxton: The answer is simple. The new clause does not cover that point because, as the hon. Member for Croydon, South has said, it is already covered in law. If an employer pays the fees for an employee's training, that expenditure can already be set against tax. My hon. Friend the Member for Wrexham (Dr. Marek) is quite right. If an employer wishes to have an employee trained in a specific skill which will benefit the employer that training should probably be paid for by the employer, but if people wish to improve their own skills and if society in general rather than an individual employer requires people to change their skills possibly two or three times in a lifetime, society and the state should provide that opportunity and the individual should not be forced to find the fees out of his own pocket. I hope, therefore, that the Minister will not accept the new clause.

Mr. Hayhoe: My hon. Friend the Member for Croydon, South (Sir W. Clark) will acknowledge that this is really a re-run of a debate which took place on the 1982 Finance Bill. My right hon. Friend the present Secretary of State for Transport responded to that debate and it would not be useful for me to take up the time of the House in repeating the arguments.
The purpose of the new clause is to give tax relief to employees who incur expenses in obtaining technical qualifications to further their careers. The whole House recognises the importance of technical education. The question is whether the proposed tax relief is the best way to encourage it. In the Government's judgment, directing resources towards improving and extending the youth training scheme, supporting the Open tech in a variety of other ways is a better targeting of resources towards the improvement of technical education.
As my hon. Friend the Member for Croydon, South acknowledged both in moving the new clause and in responding to an intervention, the new clause is technically defective. Having participated in Finance Bill


debates for some time from different parts of the House, I have noticed that the person responding from the Dispatch Box nearly always says that he has been advised that the proposal is technically defective, especially when it is a complicated new clause.
There is a great deal of sympathy with my hon. Friend's intention of seeking to achieve more technical education. As he will know from previous debates and from his correspondence with my right hon. Friend the Chancellor, such dissent as there may be relates to the technique whereby that aim can best be achieved. I certainly undertake to give careful consideration to the points that my hon. Friend has raised and I hope that he will not press the new clause at this stage.

Dr. McDonald: The Opposition sympathise with the aims expressed by the hon. Member for Croydon, South (Sir W. Clark). The new clause relates to a narrow range of people who are in work and wish to bring their technical skills up to date or to acquire new technical skills and we sympathise with the hon. Gentleman's view that every effort should be made to ensure that that happens.
The Minister replied that in the Government's view tax relief was not the right way to achieve that aim but that the Government wished to make more opportunities available for such education. I shall not transgress into a debate on the education system as that would take us too far from the new clause, but the Government need to do a great deal more to make technical education available. Unfortunately — I think that this is what the hon. Member for Croydon, South has in mind — the Government have made it much more expensive for an employee to improve his or her skills or to acquire new skills in this area. Open University fees have risen sharply since 1979, as have fees for all kinds of courses, including adult education courses at local polytechnics and colleges of further education. In all those areas the cost has risen substantially. The individual might be seeking such education while remaining in work.
That is why we understand some of the reasons why the hon. Member for Croydon, South brought forward the new clause. We sympathise with his aims. The proper method should be to widen the availability of technical education at all stages of life and make it much more cheaply available, so that individuals who are, for example, seeking such training through the Open University, do not find the costs the crippling burden that they now find them.

12 midnight

Sir William Clark: I am grateful to my right hon. Friend the Minister of State for what he said. In view of the fact that he said that he would give the matter sympathetic consideration in future, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 27

WITHDRAWAL OF RIGHT OF CERTAIN NON-RESIDENT COMPANIES TO PAYMENT OF TAX-CREDITS

'(1) This section applies to a company which has, or is an associated company of a company which has, a qualifying presence in a unitary state and, at any time when it or its associated company has such a qualifying presence, is entitled by virtue of arrangements having effect under section 497(1) of the Taxes Act (relief by agreement with other countries) to a tax credit under section 86 of the Finance Act 1972 (tax credit for certain recipients of qualifying distributions) in respect of qualifying distributions made to it by companies which are resident in the United Kingdom which is equal to one half of the tax credit to which an individual resident in the United Kingdom would be entitled in respect of such distributions.

(2) Schedule [Supplementary provisions as to withdrawal of tax credits] to this Act has effect to supplement the provisions of this section.

(3) Notwithstanding anything to the countrary in the arrangements referred to above and subject to paragraph 2 of the said Schedule, a company to which this section applies shall not be entitled to claim under subsection (4) of the said section 86 to have the tax credit referred to in subsection (1) above set against the income tax chargeable on its income for the year of assessment in which the distribution is made or, where the credit exceeds that income tax, to have the excess paid to it.

(4) A company shall be treated as having a qualifying presence in a unitary state if it is a member of a group and, in any period for which members of the group make up their accounts ending after the relevant date, 7½ per cent. or more in value of the property, payroll or sales of such members situated in, attributable to or derived from the territory outside the United Kingdom, of which that state is a province, state or other pan, are situated in, attributable to or derived from that state.

(5) For the purposes of subsection (4) above—

(a) 7½ per cent. or more in value of such property, payroll or sales as are referred to in that subsection shall be treated as being situated in, attributable to or derived from the state there referred to, unless, on making any claim under sub-section (4) of the said section 86, the claimant proves otherwise to the satisfaction of the Board, and
(b) the value of the property, payroll or sales of a company shall be taken to be the value as shown in its accounts for the period in question and for this purpose the value of any property consisting of an interest in another member of the group or of any sales made to another such member shall be disregarded.

(6) In this section "the relevant date" means the date on which this section comes into force or, if earlier, the earliest date on which a distribution could have been made in relation to which the provisions of this section are applied by an order made under this section.

(7) This section shall come into force on such date as the Treasury may by order made by statutory instrument appoint and the Treasury may in addition by order made by statutory instrument—

(a) prescribe that the provisions of this section shall apply in relation to distributions made on or after a date before that on which the order bringing them into force is made, being a date not earlier than 1st April 1985,
(b) prescribe those provinces, states or other parts of a territory outside the United Kingdom which are to be treated as unitary states for the purposes of this section, and
(c) prescribe that for subsections (4) and (5) of this section (or for those sub-sections as they have effect at any time) there shall be substituted either the following provisions—


"(4) A company shall be treated as having a qualifying presence in a unitary state if it is subject to tax in such a state for any period ending after the relevant date for which that state charges tax.
(5) For the purposes of subsection (4) above a company shall be regarded as subject to tax in a unitary state if it is liable there to a tax charged on


its income or profits by whatever name called and shall be treated as so charged unless it proves otherwise to the satisfaction of the Board.",

or the following provisions—

"(4) A company shall be treated as having a qualifying presence in a unitary state if it has its principal place of business in such a state at any time after the relevant date.
(5) For the purposes of subsection (4) above

(a) a company shall be treated as having its principal place of business in a unitary state unless it proves otherwise to the satisfaction of the Board, and
(b) the principal place of business of a company shall include both the place where the central management and control of the company is exercised and the place where the immediate day-to-day management of the company as a whole is exercised."

(8) No order shall be made under this section unless a draft if it has been laid before and approved by a resolution of the Commons House of Parliament.".—[Mr. Grylls.]

Brought up, and read the First time.

Mr. Michael Grylls: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Paul Dean): With this it will be convenient to take amendment No. 57 — new schedule—

`SUPPLEMENTARY PROVISIONS AS TO WITHDRAWAL OF TAX CREDITS

'Recovery of tax credits incorrectly paid

1. — (1) Where the provision of section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act apply so as to withdraw the entitlement of a company to claim to have a tax credit in respect of a qualifying distribution set against the income tax chargeable on its income and to have the excess of the credit over that income tax paid to it and the company (in this paragraph referred to as "the recipient company") has either had that excess paid to it, or has received an additional amount in accordance with arrangements made under Regulation 2(1) of the Double Taxation Relief (Taxes on Income) (General) (Dividend) Regulations 1973, it shall be liable to a fine for the violation of the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act equal to twice the amount of the excess or additional amount as the case may be and such fine (in this section referred to as "the recoverable amount") shall be payable to the Board and treated as having become payable at the date when the excess or additional amount was paid to the recipient company and may be recovered in accordance with subparagraphs (2) to (5) below.

(2) The recoverable amount may be assessed and recovered as if it were unpaid tax and section 30 of the Taxes Management Act 1970 (recovery of overpayment of tax, etc) shall apply accordingly.

(3) Any amount which may be assessed and recovered as if it were unpaid tax by virtue of this paragraph shall carry interest at the rate of 9 per cent. per annum from the date when it was payable in accordance with this paragraph until the date it is paid and it is hereby declared that this paragraph applies to a recoverable amount which is paid without the making of an assessment (but is paid after it is due) and that where the recoverable amount is charged by any assessment (whether or not any part of it has been paid when the assessment is made), this paragraph applies in relation to interest running before, as well as after, the making of the assessment.

(4) Where the recoverable amount is not paid by the recipient company within six months from the date on which it became payable—

(a) the recoverable amount may at any time within six years from the date on which it became payable be assessed and recovered as if it were unpaid tax due from any person who is or was at any time prior to the

expiration of the said six year period connected with the recipient company, or would have been connected on the assumption that all the facts and circumstances relating to the recipient company at the time the excess or additional amount as the case may be was paid continued to apply for six years thereafter, and section 30 of the Taxes Management Act 1970 shall apply accordingly, and
(b) as respects its accounting periods beginning with that in which the excess or additional amount referred to in sub-paragraph (1) above was paid and ending with that following that in which the recoverable amount is paid in accordance with the provisions of this paragraph, the company which made the qualifying distribution in respect of which the recipient company received the excess or additional amount shall not be entitled to set any advance corportion tax paid by it against its liability to corporation tax for such periods in accordance with section 85 of the Finance Act 1972 (payments of advance corporation tax to be set against company's liability to corporation tax on its income) nor to surrender the benefit of the whole or any part of any amount of advance corporation tax to a subsidiary in accordance with section 92 of that Act (setting of company's surplus advance corporation tax against subsidiary's liability) in such periods.

(5) Where a recoverable amount is assessed and recovered from a person connected with the recipient company in accordance with sub-paragraph (4)(a) above, that person shall be liable for the interest payable in accordance with sub-paragraph (3) above and, until the interest is so paid, sub-paragraph (4)(b) above shall apply as if the words "the interest due in accordance with sub-paragraph (3) above is paid" were substituted for the words "the recoverable amount is paid in accordance with the provisions of this paragraph".

(6) Interest payable under this paragraph shall be paid without any deduction of income tax and shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.

(7) Where under the law in force in a territory outside the United Kingdom interest is payable subject to a deduction in respect of taxation and such deduction applies to an amount of interest paid in accordance with sub-paragraph (3) above, the reference to the rate of 9 per cent. per annum in that subparagraph shall be deemed to be a reference to such rate of interest as after such deduction shall be equal to the rate of 9 per cent. per annum.

Claims to payment of tax credits following remedial legislation in unitary states

2.—(1) This paragraph has effect where a company to which section [Withdrawal of right of certain non-resident companies to payment of tax credits] applies has a qualifying presence in a province, state or other part of a territory outside the United Kingdom which has been prescribed as a unitary state for the purposes of that section and, at the time when a qualifying distribution is made to that company by a company which is resident in the United Kingdom, that state has enacted legislation the effect of which is that, as from a future date which shall not be later than 31st December 1986, it will cease to be a unitary state within the meaning of the definition in paragraph 5(1) below, notwithstanding that it remains prescribed as such for the purposes of that section.

(2) In the circumstances described in sub-paragraph (1) above the company in receipt of the qualifying distribution shall be entitled on or after the effective date to claim to have the tax credit to which it is entitled in respect of the distribution set against its liability to income tax and to have the excess (if any) of the credit over that liability paid to it; but, if payment of the excess or of the additional amount referred to in Regulation 2(1) of the Double Taxation Relief (Taxes on Income) (General) (Dividend) Regulations 1973 is made before the effective date, the provisions of paragraph 1 above shall apply in relation to that payment regardless of the enactment of the legislation referred to in sub-paragraph (1) above.

(3) For the purposes of this paragraph the effective date shall be deemed to be the date (not to be later than 31st December 1986) on which the legislation referred to in sub-paragraph (1) above actually becomes effective in the province, state or other part of the territory outside the United Kingdom which has been prescribed as a unitary state for the purposes of section


[Withdrawal of right of certain non-resident companies to payment of tax credits], irrespective of the date, if any, specified in that legislation.

Avoidance of provision withdrawing tax credits

3.—(1) In any case where arrangements are made, whether before or after section [Withdrawal of right of certain nonresident companies to payment of tax credits] comes into force, as a result of which interest is paid or a discount is allowed by or through a person who is resident in the United Kingdom, or carries on business in the United Kingdom through a branch or agency, and it is reasonable to suppose that, if such payment or allowance had not been made, a qualifying distribution would have been made by the person by or through whom the payment or allowance is made, or by another company resident in the United Kingdom, to a company which has, or is an associated company of a company which has, a qualifying presence in a unitary state at the time when the payment or allowance is made, then—

(a) no person who receives that payment or allowance shall be entitled to relief from income tax or corporation tax thereon by virtue or arrangements having effect under section 497(1) of the Taxes Act, and
(b) the payment or allowance shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.

(2) Without prejudice to the generality of sub-paragraph (1) above, where a payment or allowance is not of itself a payment or allowance to which sub-paragraph (1) above applies, but is made in conjunction with other payments of whatever nature and taken together with those payments has substantially similar effect to a distribution, then, for the purposes of sub-paragraph (1) above, it shall be treated as a payment of allowance within that sub-paragraph.

(3) Any company which has received such a payment of interest as is referred to in sub-paragraph (1) above, from which income tax has not been deducted by the person making the payment, and has a qualifying presence in a unitary state at the time of the payment, shall be treated for the purposes of paragraph 1 above as a company from which the entitlement to claim payment of the excess of a tax credit over the income tax chargeable on its income has been withdrawn by section [Withdrawal of right of certain non-resident companies to payment of tax credits] (1) and which has had paid to to it such an excess in an amount equal to the income tax which should have been deducted from the payment of interest.

Power to inspect documents of non-resident companies

4.—(1) Where it appears to the Board that the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] and this Schedule may apply to a company resident outside the United Kingdom (in this paragraph referred to as a "foreign parent"), the Board may, by notice in writing given to the foreign parent or any associated company of that foreign parent require that company within such time (not being less than thirty days) as may be specified in the notice to make available for inspection any books, accounts, or other documents or records whatsoever of that company where in the opinion of the Board it is proper that they should inspect such documents for the purposes of ascertaining whether the said provisions apply to the foreign parent or such associated company notwithstanding that in the opinion of the person to whom the notice is given those provisions do not apply to that company or any associated company of that company.

(2) In the Table to section 98 of the Taxes Management Act 1970 (penalties) at the end of the first column there shall be added—

"Paragraph 4 of Schedule [Supplementary provisions as to withdrawal of tax credits] to the Finance Act 1985".

Meaning of "unitary state", etc.

5.—(1) In this Schedule and section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act—

"group" and "member of a group" shall be construed in accordance with section 272(1) of the Taxes Act (definition of groups of companies) with the omission

of the restriction in paragraph (a) of that subsection and the substitution of the words "51 per cent." for the words "75 per cent." wherever they occur,
"qualifying distribution" has the same meaning as in Part V of the Finance Act 1972 (taxation of companies and company distributions),
"unitary state" means a province, state or other part of a territory outside the United Kingdom with the government of which the arrangements referred to in subsection (1) of section [Withdrawal of right of certain non-resident companies to payment of tax credits] have been made which, in taxing the income or profits of companies from sources within that province, state or other part, takes into account, or is entitled to take into account, income, receipts, deductions, outgoings or assets of such companies, or of associated companies of such companies, arising, expended or situated as the case may be outside that territory and which has been prescribed under subsection (7) of that section as a unitary state for the purposes of that section; but no such province, state or other part shall be so prescribed which only takes into account such income, receipts, deductions, outgoings or assets—

(a) if the associated company was incorporated under the law of the territory, or
(b) for the purpose of granting relief in taxing dividends received by companies.

(2) For the purposes of this Schedule and section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act—

(a) section 533 of the Taxes Act (connected persons) applies; and
(b) section 302 of the Taxes Act (meaning of "associated company" and "control") applies with the substitution of the words "six years" for "one year" in subsection (1) of that section.'.

Mr. Grylls: The clause stands in my name and those of 100 hon. Members in all parts of the House.
No doubt to some observers it will appear ironic that an early-day motion calling for action to change the corporate tax system in California, Alaska, Idaho, Montana, New Hampshire and north Dakota has attracted the support of 250 hon. Members on both sides of the House over the past few months. Such is not normally the stuff of politics here in Westminster. Although it may appear ironic, the reality is—I think that the House will agree with this — that the universally deplored, worldwide reporting system applied in those states to foreign multinationals is a potential time bomb ticking away under international trade and investment.
I hope that the new clause, which I commend to the House, will succeed in persuading United States companies to press and lobby hard their state governments and federal Government to remove that time bomb once and for all and clear up the issue of unitary tax. It has been a tremendous encouragement to me, in the preparation that I and many others have done for the new clause, to have the support of all parties in the matter, particularly because it affects trade and investment. With the high unemployment throughout the world it is a crazy time to have taxation that threatens jobs and investment.
It is important for the House to realise that worldwide the United Kingdom is second only to the United States in the amount of its overseas investments. Within the United States, British companies invest more than any other foreign multinational. Therefore, many British companies with the United States operations are at risk from the state corporate tax system. This is the important point that the House will want to grasp. The system reaches out beyond the shores of the United States to include the worldwide financial operations of a United


Kingdom multinational group, although that has no conceivable relevance to the group's activities in the United States, and in that state in the United States.
That reporting system makes a nightmare of business planning and investment by multinationals, by creating uncertainty as to the tax due in a state such as California. I ask the House to consider the situation in a London headquarters company with a subsidiary in California, which is therefore subject to Californian unitary tax. That subsidiary in California cannot kno its tax liability without supplying the state authorities with such details as payroll, property and equipment in every other country throughout the world in which that British multinational operates.
The House may be interested to have an example, which brings the matter home. It is the case, which has been well written up, of the subsidiary of the EMI group, Capitol Records. It is in California, and now part of the Thorn EMI group. The Capitol Records subsidiary was asked to provide information on a worldwide reporting basis. It sent that request from the Californian state authorities to its headquarters in London, which wrote to the Californian state authorities saying, "We would love to give you this information, and would normally be happy to do so, but we happen to be a defence contractor for Her Majesty's Government, and we have signed the Official Secrets Act. If we give you this information, we shall be put in prison, so we shall not do it, even for the Californian tax authorities." The company then suffered a 25 per cent. penalty clause for non-disclosure of information from London and other parts of the world. That illustrates the unpredictability and irrationality of such taxation.
The sheer unpredictability and illogicality of such a method of tax assessment threatens investment and trade. Above all, it strikes a blow at the internationally accepted principles of taxation by creating tax liabilities in a state which bear no direct relation to profits earned in that state. For the purposes of state taxation, the method can turn a company's loss in a state into a profit by bringing in the worldwide figures. Perhaps more seriously, it burdens companies with the unproductive work of creating and producing information and translating it into dollars from the foreign currencies in which those subsidiary companies operate. That is not sensible. An example of this is that the worldwide accounts of companies must be recomputed in dollar terms and must conform to American accounting standards. That is especially offensive when a state—a political subdivision of a nation—attempts to carry out what is, in effect, foreign policy. I am sure that those who created the constitution of the United States did not intend that the individual states should carry out foreign policy by asking for information in that way.
To draw an analogy closer to home, it is as though Lambeth borough council asked for worldwide information from an American company whose United Kingdom subsidiary was based in Lambeth. That would be an impertinence and an abuse of the powers of Lambeth borough council. I am sure that it would do no such thing. That is comparable with what is happening in some American states. It runs counter to all the work that has been done. Through double taxation treaties, the United States and Britain have worked for many years to eliminate barriers to trade and investment, which were created, understandably, by the variety of tax systems in the world. The arms-length system of taxation embodied in our treaty network and that of the United States is the international

standard and the custom of nations. It is recognised by the OECD and by the United Nations. The use of the worldwide reporting system violates that standard.
I should run through what has happened since the United Kingdom-United States treaty was being negotiated in 1975, because the history of what happened is the basis of new clause 27. When the current treaty was being negotiated in 1975, it contained a clause—clause 9(4)—which would effectively have barred unitary tax. That would have been fine. Unfortunately, although clause 9(4) was passed by a majority in the Senate, it was not passed by the necessary two thirds majority, and it failed. By this American action, Britain was placed in the position of either rejecting the entire treaty — some would describe that as throwing out the baby with the bathwater — or of accepting it without clause 9(4). The House, rightly, accepted the treaty, subject to assurances from Ministers that they would press for an early resolution of the issue, backed by assurances from the United States that it would use its best endeavours to secure an early solution.
On 18 February 1980, the then Minister of State—my right hon. and learned Friend the present Chief Secretary—said:
To those who remain concerned about the unitary question, I say that there is no disposition on the pan of the Government to let the issue die. If the House approves the convention and if it is ratified thereafter, we shall be prepared to place on record, for all to see, our reservations on the unitary system. The Administration of the United States were left in no doubt by what I told them … We do not propose to bury the issue if the House gives its approval to the convention and the three protocols."—[Official Report, 18 February 1980; Vol. 979, c. 179–99.]
When ratification took place on 25 March 1980 — entering into force on 25 April 1980 — the British Government expressed to the United States Administration strong disapproval of the worldwide combined reporting system. In a note to the United States Administration, the Government said:
It must be emphasised however that the acceptance of the Senate reservation"—
taking out clause 9(4)—
in no way implies approval of the unitary basis and that it is the urgent request of Her Majesty's Government for the reasons given above that the Government of the United States should use its best endeavours to eliminate the international application of the unitary basis of taxation".
United States' companies received substantial tax concessions as a result of the treaty in return for the inclusion of clause 9(4) prohibiting the use of unitary tax. Clause 9(4) was to be, in the words of the then Senator Morgan, who participated in that debate in the Senate,
a concession for a concession".
I believe that in 1980 the House would not have ratified the treaty without United States' assurances that the unitary tax problem would be solved.
Since 1980 there have been various attempts in the United States Congress, as my colleagues who visit the United States regularly will know, to put through a Bill outlawing unitary tax. It is odd that, despite general antipathy in Washington towards this unfair system, so far none of these Bills has succeeded in being passed. It seems that, whenever a Bill has approached the winning post, another general election has been called, and the whole process has had to start again. I suppose that we hale the same problem here. During this period the United Kingdom Government and many other Governments have pressed vigorously for an end to this perverse system.
I should like to pay a warm tribute to the staff of the British embassy in Washington who, over these five or


seven years, have worked hard to resolve this issue. I pay particular tribute to the Economic Secretary in the embassy, Mr. Harry Walsh, who has just returned to London. He had become one of the great experts there. He slaved away on this issue and worked tirelessly to produce a solution. I should like to thank the British consulates at the state level which have negotiated and done what they can. I pay tribute also to Treasury Ministers and their officials in the United Kingdom, in the Foreign and Commonwealth Office and especially in the Inland Revenue, who have borne the burden of this continuing problem.
Two years ago, on 12 July 1983, my right hon. Friend the Chancellor in a letter to the then Treasury Secretary, Donald Regan, said that he was
keen for the matter to be resolved … before harm is done between our two countries.
I emphasise that quotation, because hon. Members and all the British people do not want in any way to damage our relations with our strongest and, perhaps, favourite ally. I think that my right hon. Friend the Chancellor had that point very much in mind. However, the problem has not been resolved.
In September 1983 President Reagan set up a working group to look into the problem. The Prime Minister, who was visiting Washington at that time, chivvied the President to resolve the issue and, with commendable farsightedness, warned the Administration:
We might be under very severe pressure to take retaliatory action.
Two years later we find ourselves having to do just that.
12.15 am
I pay tribute also to the efforts of my right hon. Friend the Secretary of State for Trade and Industry. He lobbied for industry during his recent visit to California and I know that that was helpful.
By the autumn of 1983, despite all the efforts that had been made, three years had passed and the promises of 1980, which I have quoted, to resolve the issue had not been met. Frustration and impatience were being expressed in Westminster and British firms were becoming increasingly caught up in a tax nightmare. I hope that the House will feel strongly that it is our duty and that of the Government to protect the interests of individuals travelling abroad and those of companies that operate abroad.
In April 1984, seven months later, there were no signs of progress from the United States working group. I went to Washington to announce details of a retaliatory clause that we had tabled last year. The clause had the support of many of my hon. Friends. Unfortunately, and I believe mistakenly, the Government refused to back the clause and to have a debate last summer, almost precisely at this time of year. They claimed that it was premature to retaliate.
There is no doubt that the tabling of the clause in 1984 alerted United States opinion to the real possibility of legislation being enacted in Westminster to retaliate against them. As a result of publishing the clause last year, there was evidence of fresh activity in the United States against the continuation of unitary tax. There were clear signs of United States companies working hard to get rid of it.
When the clause was not inserted in the Finance Bill 1984, it seemed that United States corporations saw that

the threat of retaliatory action had receded. Later in 1984, the working group reported. It recommended what it described as a "water's edge" solution. At that time the United States Treasury Secretary wrote to the President as follows:
If there are not sufficient signs of appreciable progress by the States in this area by 31st July next year whether by legislation of administrative action, I will recommend to you that the Administration propose federal legislation that would give effect to a water's edge limitation patterned after that in the Chairman's Report.
That was the result of the working group's activity.
I pay tribute to the states that have repealed their unitary tax provisions since then — including Oregon, Florida and Colorado—but it is important that during the debate the United States Administration is left in no doubt that the House does not regard the action by those states as being enough to constitute "appreciable progress" in removing unitary tax and that it does not constitute a real solution to the problem. It is not our job to pick off states one by one.
The problem will not be met until California and the other five unitary states have passed satisfactory legislation, or until the federal Administration has produced a solution that will stand for the whole United States. In many ways a federal solution would be the best one.
Over the past year, attempts — unfortunately all in vain so far — have been made in Sacramento, the state capital of California — to progress legislation on unitary tax. I am grateful to the governor of California for the personal efforts that he has made to seek a solution to the unitary tax problem. Only two weeks ago I went to California to see what progress was being made and, perhaps more importantly, to express the continuing anger and frustration of many in the House and in British industry that so little progress had been made.
United States business men whom I met, and Japanese business men, all told me that they wanted a solution to the problem. That view is shared by our European Community partners, especially the Netherlands, France and Germany, and by Japan, Canada and Switzerland. However, satisfactory legislation in one form or another still eludes us seven years after the treaty was signed and after assurances were given to the House of Commons. This House, which has been patient almost to a fault during that period, can no longer wring its hands and hope that something will be done. The time for action has come. We must apply leverage on the United States to secure a complete, satisfactory and final solution to this irritating problem. That is the reason for new clause 27.
Since the first retaliatory clause was tabled in 1984, extensive consultations have taken place with business and lawyers to try to provide in this new retaliatory clause a greater element of flexibility for the Government when deciding how widespread the United Kingdom countermeasures should be. When it is triggered by statutory instrument, the clause would withdraw payments of tax credits to United States companies with a substantial business presence in unitary tax states — for example, California.
There are three options. Depending upon which of the three options the Government choose, the trigger will affect United States companies in the United Kingdom which have 7·5 per cent. or more of their property, payroll or sales in a unitary tax state, or which are subject to tax on income in a unitary tax state, or which have their


principal place of business in a unitary tax state. Those are the three triggers that the Government will have at their disposal if the House decides to accept the new clause. My hon. Friend the Member for Tatton (Mr. Hamilton), who is a very experienced lawyer, has been working with me on this new clause. He will expand a little further, if he catches your eye, Mr. Deputy Speaker, on the details.
The House will want to know what advice those hon. Members who have sponsored the new clause will be giving to the Government about when they should activate one of the three triggers. Such a decision will not be easy for my right hon. Friend the Chancellor of the Exchequer and his colleagues in Government. I pay tribute to them for having expressed considerable sympathy for the clause and for enabling this debate to take place. Rather like marriage, retaliation against a friend and ally is not something to be entered into lightly.
We must all hope that if this new clause is passed it will succeed in inspiring action in California and the other sunitary tax states during the remaining few weeks of the 1985 legislative session. We must also hope that it will inspire action in Washington and that they will lobby the federal Government to use their influence to solve this problem. If they do not, I hope that my right hon. Friend the Chancellor of the Exchequer will not flinch from pulling a trigger which will hit United States companies where it hurts: on their bottom line. That would produce a response.
If the new clause is successful in motivating the United States Administration, the states and business to secure a solution to this problem, the trigger could be released just as quickly as it had been pressed.
I pay tribute to the determination of the 50 companies which some years ago formed themselves into the unitary tax campaign which has worked very hard to solve this problem. A number of the companies benefit from the application of unitary tax. Despite that, they believe that the principle is wrong and they vigorously oppose it. I pay tribute to them for their stand. I pay tribute also to the chairman of the unitary tax campaign, Mr. Peter Welch, and to Professor Peter Whiteman, QC, a highly skilled lawyer who has helped us to draft the new clause. If the new clause is accepted, the House will owe him a great debt. The CBI, too, should be praised for its action in sending a mission earlier this year to California.
Although I have criticised the Government for resisting the pressure for retaliation in 1984, I am the first to say that the Government, including the Chancellor, the Foreign Secretary and the Financial Secretary, have shown admirable resolution and determination in pressing for a solution to the problem. I hope that the House will approve the new clause and that the Financial Secretary will agree that the time has come to put these powers on to the statute book.

Dr. Marek: I was interested in the remarks of the hon. Member fo Surrey, North-West (Mr. Grylls) and to hear the long roll call of people who have been involved in the campaign and the various actions that they had taken to arrive at the position which we are discussing tonight.
However, missing from the hon. Gentleman's comments was any justification from the point of view of, say, California as to why that state felt that it had no option other than to institute unitary taxation. The hon. Gentleman said that such taxation could, in a particular example, change a loss into a profit. That may be so from

an examination of the company's books, but it may not be so from a careful examination of whether transfer pricing between different parts of the company — remembering that we are talking about multinationals — has taken place between one country and another. That is the problem facing us as we consider the new clause.
Companies do not have a code of morality and say, "We honestly believe that we made 20 per cent. of our profits as a multinational in the United Kingdom, so we will pay 20 per cent. of the tax to the UK, and the respective rates of tax in all the countries in which we operate." Multinationals will, by and large, try to minimise the tax that they pay worldwide, and rightly so. If, say, in California wage rates, land taxes or whatever are high, multinationals will minimise the tax that they pay in California and maximise the tax that they pay in, say, Taiwan and Korea. The same is true of multinationals based and registered in this country.
For a company that is based in this country and has much of its business in America, it gets caught by way of unitary taxation, and there is a real problem for such companies. There is an inherent unfairness in a system by which some states apply the normal code of taxation and others apply unitary taxation because, in effect, that creates double taxation, and that hits particularly hard those companies whcih are registered in, say, the UK but have a substantial trading interest in a country which applies unitary taxation, such as California. It is clear, therefore, that the system is not fair. For that reason I hope that the new clause will be accepted.
However, price fixing and transfer pricing by multinational companies operates not to the benefit of this country. It is not to the benefit of this country. Having said that, I do not think that affects the issue of unitary taxation. It ought to be looked at but not now.
I wish the new clause well. We cannot have two systems working side by side. We will either have to have one or the other. We do not have unitary taxation, there is no prospect of it coming, therefore it is sensible to see if we can get rid of it.

Sir Eldon Griffiths: I very rarely speak in finance debates. I am quite sure that the rule of the road should be brevity, but I have perhaps some small credentials to speak in this matter because I have spent virtually the whole of my political and personal life as a devotee of the United States. I went to college there. I earned my living there for some 17 years. I bought my first house there. I was married there. I have a son there who is a banker. I am a director of two American companies. I visit the United States many times each year and I have the honour of representing, indirectly no doubt, some 23,000 American airmen who have the good fortune to be stationed in my constituency. So I make no bones about it. The United States is my second home, and my dearest wish in politics is that the Anglo-American alliance shall continue to be the bulwark of freedom and prosperity in the western world.
But there is one thing that I have never been able to stand when it comes from the United States and that is the attempt occasionally to export American policies beyond the water's edge and to impose them on other people. They tried that at the federal level in respect of the Soviet population and certain states, those named by my hon. Friend the Member for Surrey, North-West (Mr. Grylls)


in particular, California, have been seeking to do so for a number of years in respect of unitary taxation. It is a subject that my hon. Friend dealt with copiously and clearly. There is not much more I need to say about it. But I have discussed this matter with American bankers, businessmen and politicians these 10 years and there is general agreement among those who care for the maximising of trade between the two sides of the Atlantic and indeed between the two sides of the Pacific that unitary tax is bad for business, bad for trade and bad for our relations and the United States ought to get rid of it.
As my hon. Friend has said, over the years we have tried virtually every which way, if I can use an Americanism. We have tried the legal route and got nowhere. We have tried the congressional route and got nowhere. We have tried the lobbying route through American businesses, banks and exporters and again we have failed. Consequently we are driven, reluctantly, to the retaliatory route. I, for one, always hoped that it would not be necessary that we should ever come to a point where it would be the duty, as I see it, of Parliament to put into the hands of Government the means of retaliating against the United States in this particular area, but as a friend of America I believe we now have no choice left.
I would simply, if I may, in supporting this clause, make these few simple points. There is nothing to be said in favour of unitary tax. It flies in the face of the broad movement towards the liberalisation of world trade. It is contrary to the declared policy of successive American Administrations, Democrat as well as Republican. It is damaging to the best interests of United States business abroad and it is worth saying that the third industrial power in the world, after the United States and Japan, is not the Soviet Union. It is not the Federal Republic of Germany. It is American industry abroad and it is contrary to the best interests of that industry that this tax should continue.
I hope that the federal Government will screw up their courage and find the time and the persistence to get rid of it at the federal level. I suggest to my hon. Friend the Financial Secretary, whose diligence in this matter I admire, that he should not only accept this clause when the House comes to consider it but that he should go further. He must bring this point home to the United States. He can do it in four ways.
First, there are now some 5,000 American lawyers in London. They will shortly be in Westminster Hall. It is important that not one of those lawyers should leave London without knowing how the British Government feel about unitary taxation. Secondly, he should ask representatives of all substantial Anerican multinationals headquartered in London to come to the Treasury and to hear, from Ministers if possible, but if not from senior officials, that we mean business in this matter. The more of those representatives that are told precisely what the feelings of the House are, the better it will be.
Thirdly, it is enormously important to strengthen British representation in California. I have many times said in the House that the Foreign Office's judgment of America is faulty. I have lived there long enough to know that that is so. There should be a strengthening of our representation on the west coast of America, even if it means some reduction of our representation on the east

coast. The consulate in Los Angeles is inadequately staffed, and it is important to increase that staff, if only to get this point across.
Finally, I suggest to my hon. Friend the Financial Secretary that he seriously considers putting full page advertisements in the New York Times, the Washington Post, the Wall Street Journal Europe and, above all, the Los Angeles Times, explaining very carefully that the best allies of America and some of the closest friends of California have said in the House of Commons that we cannot tolerate any longer the discrimination that this unitary tax imposes on us, and we expect them to get rid of it. The more that that can be put in the major national newspapers—television would follow — the more that it will be brought home. The matter can be resolved if the Government will follow what the House has started tonight.

Mr. Blair: The hon. Member for Surrey, North-West (Mr. Grylls) has been admirably clear and thorough in his presentation of the new clause, and I can therefore be brief.
The major employer in my constituency is Thorn EMI and, therefore, I am aware of the problems of unitary taxation. There is no doubt that it adversely affects United Kingdom companies. I agree with the general aims of the unitary tax campaign, and the Labour party will support the new clause.
However, we should appreciate the seriousness of what we are contemplating, and examine the drafting and timing of the new clause. We should also reflect on the frustration that has given rise to it, because we are taking a serious step.
It is essential to remember that the new clause is not proposing to cure unitary taxation, because we cannot do that, but is a retaliation against it. It is important that that point is made, because it emphasises that we are not taking this step lightly, but after a due consideration of the difficulties.
One can understand how unitary taxation came about. It began in California before the second world war, mainly as a result of the activities of certain movie companies sending earnings abroad. In California, the spirit behind the tax was, quite properly, to prevent creative international accounting. Unfortunately, California introduced unitary taxation, whereas most other countries attempted to have transfer pricing arrangements, as we do. They are particularly difficult. When considering these factors, one is considering activities within a particular state as well as worldwide.
California remains the main state of difficulty, and I understand from an article in the Financial Times that getting on for two-thirds of the revenue raised from unitary taxation is raised in that state. The main problem for United Kingdom companies is the enormous compliance costs involved in the unitary taxation system. These result not just in the specific problems that the hon. Member for Surrey, North-West referred to, because another difficulty is the sheer scale of the information that has to be given in order for the unitary taxation rules to be applied. He quite rightly went through the problems that have arisen since the 1975 double taxation agreement.
There are difficulties in connection with the United States Federal Government. One understands in particular the sensitivity of states over Federal Government interference in state activities and state prerogatives. The


Federal Government have shown a certain sensitivity over this, or at least that has been the stated reason for slow progress, but the Federal Government must make far greater use of the opportunity they have to bring pressure to bear on the states to change.
Two events which occurred in 1983 are worth mentioning. First of all, there was the decision in the Container Corporation case, where the Supreme Court of the United States determined that unitary taxation was not outlawed by the constitution. But that was a majority decision with a strong dissent, and the United States Justice Department was not briefed to appear in that case but attempted to appear after it ended. The commission set up by Secretary Regan, which reported in July 1984, looked at the matter in a certain way. In particular, it recommended that unitary taxation should be restricted to the water's edge; in other words, confined to taxing as a unit a company's activities within the United States.
According to the Unitary Taxation Campaign, there are still nine states with unitary taxation, which means that they go across the water's edge. There seems to be some disagreement as to the precise number of states. Some Treasury Ministers put the figure at six and the Library told me it was seven. Perhaps the Financial Secretary could elucidate on that. When the Regan commission reported, it set a deadline of 31 July 1985 for the states to take action on unitary taxation. That deadline is fairly close now, and I hope that this new clause, if it is passed, will give the Government a negotiating weapon. It will be a sign of our seriousness of intent to allow the federal and state governments to recognise exactly what we are contemplating.
The new clause meets the injustice of unitary taxation with the fairly rough justice of retaliation. Were a state to be designated by an Order of the House, any company with a qualifying presence within that state would not be able to claim back the refund of ACT under the double taxation treaty. That is a fairly heavy penalty for those companies with a qualifying presence in that state to bear. One hopes that that will encourage them to put pressure on their own state Governments to change their attitude towards unitary taxation.
It is right that the House will have to approve an order before the new clause can come into operation. We are expressing the seriousness of our concern, but we are saying, "We do not want to go all the way until they have had another chance to put their house in order." The new clause will force the pace towards abolition of unitary taxation.
12.45 am
The British Insurance Association and a number of insurance companies are worried about the difficulties that could arise for them if the new clause is implemented. I should like an assurance from the Financial Secretary that their representations would be taken into account before it was decided to put an order before the House.
It is important that the new clause has all-party support and that the House is united in identifying the problem and in its desire to ensure that discrimination against British companies is prevented. If it is felt that an order should be put before us—we hope that the need for that will not arise — it would he wise for the Opposition to be kept fully informed of the state of play, so that the all-party support can be retained. It is important that we should act as one.
The issue is important to British firms. We hope that the United States Government and the state governments will note the strong feeling of both sides of the House and will act voluntarily, rather than wait for the threat of retaliation to become actuality.

Sir William Clark: I support my hon. Friend the Member for Surrey, North-West (Mr. Grylls). Like him, I have been battling for years against unitary taxation.
I wholeheartedly agree with the hon. Member for Sedgefield (Mr. Blair) that it is a great boost to our battle that the new clause has all-party support. The Financial Secretary would be wise to note the comments of the hon. Member and to stress to the United States Government that we are not making party points.
I am sorry that the hon. Member for Wrexham (Dr. Marek) brought in multinational companies. We do not want to complicate the issue. We are talking about unitary tax and that has nothing to do with multinational companies.
The hon. Member for Sedgefield mentioned the worries of the British Insurance Association. It fears that if we take action against the United States the fourth convention will be cancelled. I cannot envisage that happening. The fears of the BIA are unfounded.
We are talking about an iniquitous tax which is anti-investment in the United States. We have well over $30 billion of investment abroad. As my hon. Friend the Member for Surrey, North-West said in a speech which everyone has commended for its clarity and lucidity, British companies own well over 20 per cent. of all foreign investment in the United States.
When I was in Washington before the presidential election I met Mr. McClure, the chairman of the working party set up by the President, and I told him in no uncertain terms what Back Benchers on both sides of the House thought of unitary tax. I warned him — and I am glad that the Prime Minister said much the same thing to the President — that pressure from both sets of Back Benches would be such that our Government would have to give way eventually, whether on the next Budget or the one after that.
Here we are at the next Budget. The United States has not taken on board what unitary tax could lead to. There is a great deal of British and American investment in Third-world countries. If any country thinks it legitimate and good business to have unitary tax, it would be disastrous for overseas investment for both the United Kingdom and the United States. I accept that this is retaliatory action. We can control only what we control, and we control only advanced corporation tax. That means on a £100 gross dividend that instead of an American investor receiving £85, in future he will receive only £70 because he will not get the 50 per cent. reduction in ACT. That should be pressed home because the latest figures show that the ACT concession for the United States is well above £300 million. If American companies, which invest in the United Kingdom and receive British dividends, realise that their income is at risk, the Federal Government may come under more domestic pressure.
I recognise that the Federal Government have difficulties in that the states are autonomous. On the other hand, if we had inserted the clause about outlawing unitary tax in 1975, it would have been mandatory on all the states


because the sovereignty of the Federal Government in Washington means that they can sign an international agreement which binds all the states.
We must bring pressure to bear on the Washington Government to end this iniquity. We are approaching 31 July and we cannot allow the present position to continue. I earnestly hope that my hon. Friend the Financial Secretary will accept the clause, and that he and the Chancellor of the Exchequer will trigger off the three points made by my hon. Friend the Member for Surrey, North-West. That is the only way to bring home to the Americans that we mean business and that unitary tax must cease.

Mr. Pike: I shall speak only briefly, because the hon. Member for Surrey, North-West (Mr. Grylls) argued the case well, and my hon. Friend the Member for Sedgefield (Mr. Blair) made the points that I intended to make. I support the new clause because it takes the right line. It is unfortunate that the line that the Government have pursued for many years has been unsuccessful in achieving the result for which we have wished. If the Government accept the amendment and it is carried, I hope that it will not be necessary to trigger the lines of action proposed in the clause, and that the Government will not find it necessary to return to the House for an order to take retaliatory action. I hope that California and the Federal Government realise that we mean business and that we intend to ensure free trade.
My hon. Friend the Member for Wrexham (Dr. Marek) referred to multinational companies, but the hon. Member for Croydon, South (Sir W. Clark) took his comments out of context. The new clause has all-party support, as has the early-day motion, in spite of doubts among my right hon. and hon. Friends about multinationals.
I have some doubts and fears about multinationals, but I recognise the importance of the taxation rather than the trade issue. It is significant that, despite fears and worries, Opposition Members are prepared to support the early-day motion and the new clause. I hope that the new clause is accepted and that it is not necessary to trigger the orders. I hope that the California authorities in particular will wake up and realise that we mean business. The House as a whole is saying that if they do not, we shall, unfortunately, have to retaliate. We hope that we do not have to take that action.

Mr. Neil Hamilton: I have a small qualification to take part in the debate because, when the double tax treaty was about to be ratified back in 1979, I wrote a book on the topic — one of the few ways in which members of the Bar can draw their presence to the attention of solicitors. A few hundred copies of the book survive and can be obtained at discount rates. I never quite made the Jeffrey Archer class, so I never needed to take advantage of the provisions of the double tax treaty in relation to the international earnings which I received from that book.
The topic has concerned British industry for a long time, so it is important to examine the way in which the clause is drafted and to discover why particular words are used rather than the alternatives which might have been used. It is important to recognise that this is merely enabling legislation which might never be used if the appropriate remedial action is taken.
As my hon. Friend the Member for Croydon, South (Sir W. Clark) said, the financial consequences of the new clause would be severe for many companies if we had to activate its provisions. It would deny tax credit equivalent to £15 on a £100 dividend to the parent company in the United States which would otherwise benefit from the repatriation of profits from United Kingdom subsidiaries.
The companies affected are those which have a substantial presence in the unitary tax state which operates the worldwide combined reporting system. The qualifying presence is defined as applying to a United Kingdom subsidiary which is a member of a group which has 7·5 per cent. or more of its property payroll or sales in a unitary tax state. That formula is used deliberately, because it is that which is used in the unitary tax states themselves and will therefore be familiar to companies operating there.
It is important to know that the terms property payroll or sales are disjunctive and not conjunctive and therefore that, if any one of them gives rise to the 7·5 per cent. trigger, the clause will affect all the companies which operate in that state. This is important to United States corporations because they already have to compile the information for state taxes. It is therefore available and will not involve any extra administrative costs to provide it to the Inland Revenue.
The 7·5 per cent. test could have been applied to income and we could have given ourselves extra test, but we decided to reject that because conceptual problems might otherwise have arisen — such as whether we should choose gross or net income and whether it should be income for United States tax purposes or for the tax purposes of some other jurisdiction. It seemed much simpler to restrict ourselves to the tried and tested formula of the unitary tax states.
Why have we chosen 7·5 per cent.? Many right hon. and hon. Members have said that the main problem is California. I am convinced that, if California takes the lead in getting rid of unitary tax, the other states will follow. California accounts for about 12·5 per cent. of American gross domestic product. That means that most American companies might come into the net if we have to activate new clause 27. Although, on that basis, the average company would have 12·5 per cent. of its assets in California, the figure pitched that high would have left many companies out of the net. We considered that the same was true for 10 per cent., so the next logical step seemed 7·5 per cent.
Why did we not go lower? In this respect, the other states that apply income tax come into play. The other states are small and there are few companies in the United States that would have more than 7·5 per cent. of their profit, payroll or sales in a state such as North Dakota. It seems that 7·5 per cent. is adequate to catch enough companies in California so that pressure can be put on the state legislature to remove the unitary tax provisions. If California repeals, the effect of the new clause is spent. Some states are not as legislatively busy as the rest of us. North Dakota, for example, has a lively system — its state legislature does not meet at all next year so, without a special session, it will be unable to conform to the new clause.
The onus of proof of entitlement to the tax credit for a company that would otherwise be caught by the new clause lies on the company, not the Inland Revenue. That means that the company must prove that it is not in the unitary tax net. It is not for the Revenue to dispute with the


company its coming within the ambit of the clause, but for the company to prove that it can take advantage of the double tax treaty.
The Treasury should act early or, once again, people in California will assume that we are not serious and that this is just so much huffing and puffing. I do not think that the consequences that have been feared would necessarily follow from early action. Under subsection (7)(a), the orders that the Treasury would have to lay can be backdated to 1 April 1985. That blocks any avoidance possibilities by which United States corporations could attempt to avoid the clause by repatriating massive dividends now and draining their subsidiaries in Britian of funds. As that is a possibility, but as we do not want to create too much uncertainty in international trade, there should be as little retrospection as possible. We should therefore have action as quickly as possible.
There are two alternative triggers to the 7·5 per cent. test to which I have already referred. One is a wide alternative trigger and the other is a narrow one. On the basis of the wide alternative the Revenue would be able to trigger the proposals in the new clause in relation to any company which has a qualifying presence in, for example, California by virtue of having any of its income subject to state taxes. The narrower definition would mean that the principal place of business of the company should be in the unitary tax state. This gives enormous flexibility to the Revenue but also creates uncertainty. The states which operate unitary tax systems should realise that there is a wide battery of possibilities open to us and that we are determined that the new clause will be effective if it ever needs to be activated. That should encourage states to take early action to remove the cause of difficulty.
If by some mischance a company tries to evade or avoid the ambit of the new clause, a variety of penalties are provided in the new schedule. A fine could be levied equal to twice the tax credit. This type of fine is important as it entails the company not just repaying the tax credit that it has already received but suffering a fine equivalent to the tax credit plus an equivalent amount on top. That is important because, under the internal revenue code of the United States, fines are not deductible from corporate profits for tax purposes, so it would increase the cost to US corporations attempting to avoid or evade the new clause.
Interest is set at the rate of 9 per cent. under paragraph 1(3) of the new schedule, effective from the time when the tax credit is paid. The loss of the right to set-off is covered in paragraph 1(4)(b), which provides for a loss of the right to set-off advance corporation tax on the dividend which cannot then be set against mainstream corporation tax liability. The right to set-off is not only lost for the accounting period in which the tax credit is paid to the company but can be carried forward indefinitely if there is any excess or surplus available for that purpose.
Various avoidance techniques might be used to try to get around the working of the clause, but I believe that we have effectively prevented them from succeeding. For example, what would happen if the United States parent company refused to pay the fine? Paragrpah 1(4)(a) of the new schedule provides that the fine can be recovered from the United Kingdom subsidiary or from any connected company. What if the United Kingdom subsidiary pays the dividend and the parent company then liquidates the subsidiary to try to circumvent the clause? The liquidated company is deemed to exist for a further six years and if

a new subsidiary is formed in its place within six years that company will be liable for the accumulated fines in relation to the original infraction. Thus, both simple liquidation and liquidation followed by reincorporation will be ineffective.
If a United Kingdom subsidiary or connected company pays the interest or the fine on behalf of the United States corporation, that will not be deductible for corporation tax purposes in this country. The purpose of that provision is to recapitulate for our own tax regime the effect of a fine not being deductible for tax purposes under the American internal revenue code.
The United States parent company subjected to fines and interest will have to pay the interest gross whereas normally the withholding of tax is deducted first and the interest is paid to the recipient net. That, too, will reduce the benefit of attempting to avoid the purposes of the clause.
The hon. Member for Wrexham (Dr. Marek) and others have referred to the use of creative accounting techniques, but I believe that we have prevented the use of such techniques by paragraph 3(1) of the new schedule. For example, if a United States parent company lends a United Kingdom subsidiary, say $1 billion and then charges 10 per cent. interest on the loan as a notional transaction intended to convert what would otherwise have been paid by way of dividend to a payment by way of interest, that too will be covered because the new schedule provides that interest paid where it is reasonable to suppose that a qualifying distribution would otherwise have been made will not avoid the provisions of the new clause.
The draconian powers of inspection and requirement of information in paragraph 4 are based on the controlled foreign companies provisions rushed through the House last year without debate and with the connivance of the Opposition, so I hope that both Front Benches will approve of the insertion of those provisions.
The measure that we propose is draconian, but desperate diseases require desperate remedies and that is the situation in which we now find ourselves. I repeat, however, that the effect of the new clause can be avoided by timely action by the states concerned. If repealing legislation is passed by 31 December 1986, even if the new clause is put into effect in the meantime, the United States corporations affected will get their 15 per cent. tax credit and will be no worse off than they now are even if the repealing legislation was not in force when the distribution payment was made. I believe that that will be a great incentive to action by California and I hope that the authorities there will take the hint.
It may be argued that we are setting a precedent, but I believe that the United States has already set the precedents. For example, the United States double tax treaty with France came into being as a result of a threat of retaliatory action of the kind that we propose today, Section 891 of the American internal revenue code sets that out, so in a sense we are simply following the action of the United States and not setting a precedent of our own.
It may be argued that our proposal overrides the double tax treaty and that that itself is a precedent. If the proposals were triggered off, they would certainly override the provisions of that treaty, but there are precedents for that in the United States. For example, the Foreign Investment in Real Property Tax Act 1980, which became effective on 1 January this year, specifically overrides all the double tax treaties entered into by the United States with all


countries around the world. The Americans have thus introduced domestic legislation of their own which overrides international obligations entered into freely by treaty; and that was a unilateral move on their part.
In relation to our own double tax treaty, too, the United States has overridden one of the articles. There is therefore a precedent for action in that context, too, in so far as the American Internal Revenue Service has made a ruling which overrides the provisions of the treaty in relation to insurance premiums received by United Kingdom insurance companies.
I believe, therefore, that this measure is timely and necessary. I do not believe that it will lead to retaiiation by the United States. I believe that the Federal Goverment are determined to see an end to this problem in the interests of their own international trade and that the cost to United States companies of inaction by the Californian authorities will be very great indeed. If the Government support the new clause today they will do a great service not just to the cause of business in this country but to the whole international trading and business community.
I commend the new clause to my hon. Friend the Financial Secretary and I hope that what he has to say today will be trumpeted across the Atlantic as a meaningful and determined attempt to declare war upon a system of taxation which is as unjust and damaging to the insterests of the United States as it is to the interests of this country and of all other countries affected by it.

Mr. Wrigglesworth: I support the motion, and urge others to support it. It is timely, as the hon. Member for Tatton (Mr. Hamilton) said. Some would say that it is long overdue. When the tax treaty came before the House, we had the opportunity to exert considerable pressure on the Administration, and, through the Administration, upon the states in the United States, to rectify the situation that had arisen. Although assurances were given, action did not result to the extent that we had hoped.
I have come firmly to the conclusion that only this sort of retaliation will pay the dividends that we want. In the mid-1970s I remember discussing the matter with Governor Brown in California and trying to get him to see the sense of the argument that was being put to him. It was clear that he was not going to budge an inch, and that no other state government would, unless there was a clear reason for them to do so, in responding to their own electorate and their interests. The only way in which we can bring that about is by putting on the pressure proposed in the new clause.
Therefore, I hope that the House will give its full support to the new clause and that the Government will enthusiastically welcome it as a means to put pressure upon the Federal Government and through them on the state legislature, so that this ridiculous situation can be resolved.

Mr. Moore: I shall try to be brief, but the House will understand that it is essential that I express with great care and clarity the Government's attitude to the clause.
This has been a major debate on an issue of great importance to the United Kingdom, the United States and all our trading partners. If I may say so, the speech of my hon. Friend the Member for Surrey, North-West (Mr.

Grylls) was fully in keeping with the importance of the issue. The House is indebted to him and his colleagues — I specifically mention my right hon. Friend the Member for Taunton (Sir E. du Cann), who is not with us tonight but who has been long active in the campaign, and my hon. Friends the Member for Croydon, Souvh (Sir W. Clark), for Bury St. Edmunds (Sir E. Griffiths), and for Tatton (Mr. Hamilton). It is important that on the issue we have had consistent all-party support. I particularly welcomed the speech by the hon. Member for Sedgefield (Mr. Blair), representing the official Opposition, that of the hon. Member for Stockton, South (Mr. Wrigglesworth), and the continued presence throughout the debate of the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood). It is crucial that we have a clear signal on whatever we do in the area. The consistent all-party support has been a key feature of the debates on the issue.
It is clear that my hon. Friend the Member for Surrey, North-West spoke for the whole House when he referred to the widely felt frustration that a solution to the problem has been so long delayed. It is equally clear that he spoke for the House when he said that the time had come for Parliament to take legislative action to register the United Kingdom's determination to see that a solution of the problem is achieved in the United States. That was borne out by contributions to the debate from all parts of the House. It is reinforced by the number of hon Members — again from all parts of the House — who have put their names to the new clause on the amendment paper.
I should like to make it clear that the Government strongly endorse everything that has been said in the debate about the imposition of unitary taxation on United Kingdom-controlled companies and other non-American corporations.
The basic objection to unitary tax is that it is contrary to the internationally accepted principle of allocating profits where a company or group operates internationally. That is that tax authorities charge tax on foreign-owned companies only on the profits arising in the country or state for which they are responsible. The arm's-length method is recognised by both the Organisation for Economic Co-operation and Development and United Nations, and is enshrined in a worldwide network of bilateral double taxation treaties including the treaties to which the United States is party. It provides a coherent and consistent tax framework for international trade and investment.
As applied by states such as California, the unitary tax method applies a formula apportionment to the worldwide profits of a multinational group to establish the tax due in California. In doing so, a unitary state is reaching beyond the borders of its own jurisdiction and taxing profits earned outside it, and thus breaching the internationally accepted principles.
For individual companies, as many hon. Members have said, that means unfair tax bills and excessive compliance costs. It can also produce double taxation. Income earned by the foreign parent of a United States subsidiary is taken into account in the unitary tax bill, and taxed without any relief for overseas tax. Multinational groups can be taxed on more than 100 per cent. of their income in a particular state, and a loss can be turned into a taxable profit. Another serious objection is the excessive compliance burden imposed by worldwide unitary tax. The method inevitably involves financial information on the worldwide activities of the group, which can be extremely


burdensome in practice. It is objectionable that a state tax authority should demand information about the financial records of United Kingdom companies, and their subsidiaries, which are outside the United States and unrelated to activities within the United States.
If unitary tax continues, it will distort investment decisions. The immediate effect is to damage inward investment in the states that impose it. There is increasing recognition in the United States that it is, therefore, in the economic interest of such states to remove it.
The damage goes wider than that. If unitary tax continues, it will disrupt the internationally accepted taxation framework, and have a damaging effect on the development of world trade. The importance of a solution is, therefore, self-evident.
A speedy resolution of the problem is especially important to the United Kingdom, because the cumulative total of United Kingdom investment in the United States is now more than $32 billion. This is more than any other country and represents nearly a quarter of all foreign direct investment in the United States. In 1983 alone, the United Kingdom invested more than $3·7 billion in the United States, which accounted for 32 per cent. of the total of foreign direct investment in the United States in that year.
The American Administration recognised this as long ago as 1977, when the United Kingdom and America negotiated a provision in the tax treaty to prevent individual states from applying the unitary method to United Kingdom companies. The proposed treaty was ratified by the House of Commons in 1977. However, article 9(4) was rejected by the United States Senate in 1978. The United Kingdom Government were then assured that the United States Administration would use their best endeavours to secure a solution.
Since then, there has been some progress, but not enough. There was a major setback, as the hon. Member for Sedgefield (Mr. Blair) said, when the United States Supreme Court ruled in the Container case that the California worldwide unitary method was not unconstitutional, at least so far as it was applied to a United States parent corporation and its foreign subsidiaries.
However, a working group was set up under the then Treasury Secretary Regan to seek to resolve the issue. The group reached a consensus on the general principle that unitary taxation should be limited to the United States water's edge. But it left important issues on the application of that general principle unresolved. In his report to the President in July 1984, Secretary Regan said that these issues should be left for resolution at state level. However, he also said that if there were not,
sufficient signs of appreciable progress by the states,
by 31 July 1985, he would recommend to the President that the Administration propose federal legislation to give effect to a water's edge limitation.
It is right to recognise the importance that the United States Administration attaches to securing a solution, which will — as Secretary Regan put it — enable the United States,
to speak with one voice in dealing with its foreign trading partners",
so that,
this irritant to international commercial relations will have been eliminated".
It is clear that there is a common objective. Some progress has been made at state level since the working group reported. Six states have now repealed or modified the

worldwide application of unitary tax. But in some cases, the state legislation does not provide a comprehensive limitation on the application of unitary tax to United Kingdom groups. In five states, legislative initiatives have failed to succeed. In California, the key state fo the United Kingdom, a legislative initiative last year was unsuccessful. Despite the Governor's efforts to achieve a solution and intense activity by key legislators, the chances of satisfactory legislation passing this year are in serious doubt.
It is against this disappointing background that the House must consider the legislation proposed in the clause and schedule. Before we contemplate the passage of this legislation, we should ask whether we in the United Kingdom have done enough to impress on our friends in the United States the importance we attach to the issue. I think the answer must be yes. This has been confirmed by all we have heard in the debate. The Government have lost no opportunity to urge a speedy solution on the United States Administration, and have done so at the highest levels. The Administration have been well aware of the strong parliamentary pressure for legislative action if such a solution was not forthcoming. In the past year, when the focus has been on action at states level, there has been vigorous and concerted activity by the United Kingdom Government and industry. Government and industry teams have gone to Florida, Colorado, Utah and North Dakota in the past 12 months. Since last July, United Kingdom teams have visited California on four separate occasions. These included a major delegation led by Sir Terence Beckett of the CBI in February this year. I would like to pay tribute to the energy and resource displayed by the CBI, the Unitary Taxation Campaign — especially its chairman, Peter Welch — and other representatives of British business in trying to secure a resolution of the problem. As my hon. friend said, a similar tribute should be paid to our officials in the Embassy in Washington and in the other American consulates and, if I may say so, especially to our officials in the Inland Revenue.
Despite all this activity from the Government and industry, and from other countries, a resolution of the problem still remains in doubt. The Government have therefore concluded that it is right that the enabling powers proposed in the clause should be passed into legislation, and we so recommend to the House.
The hon. Member for Sedgefield asked for two assurances. I happily give an assurance that the Government will take account of representations on behalf of the insurance industry, to which the hon. Gentleman particularly referred. Of course, that would extend to the rest of British industry. I recognise the absolute importance of obtaining all-party support. I cannot give an absolute undertaking in this matter, as clearly we cannot anticipate events and circumstances. However, I take the hon. Gentleman's comments very much into account. It is clearly far better to retain a united parliamentary front. As the hon. Gentleman said, the House will have time to reflect and vote under the affirmative order procedure.
The powers in the clause and schedule, if invoked, would deprive United States parent companies of tax credit on dividends paid by their subsidiaries in the United Kingdom. They could have a major impact on the finances of such companies. At the extreme, they could cost these companies as much as £500 million a year.
The Government will not, of course, recommend to the House that these enabling powers should be invoked


without the most careful consideration and consultation with all those concerned. It is important that if it becomes necessary to invoke the reserve powers there should be a degree of flexibility in specifying the companies and states that will be affected. My hon. Friend the Member for Surrey, North-West made a convincing case for this when he explained the changes that he has introduced into his clause to provide the maximum flexibility for the Government if a resolution were laid to bring the powers into effect.
I conclude, however, by expressing the earnest hope that it will prove unnecessary for the United Kingdom to invoke the reserve powers in the clause. I very much hope that our friends in the United States — in the Administration, the states and business — will soon be able to secure a satisfactory solution to the problem of their own volition. There is a common interest in solving the issue. The basis of that solution is common ground between the United States Administration, states and business. We trust that the United States will now be able to overcome the remaining obstacles to achieving a complete and enduring solution to this problem, by action in the states or by federal action.
In this spirit, I commend my hon. Friend's clause and schedule to the House.

Mr. Grylls: With permission, I should like to respond to the debate. I reiterate the all-party support for this measure. It is important that a signal should go to the United States that the House is determined in this matter and that the threat of retaliatory action will not go away until the problem is solved. In that spirit, I hope that the House will accept the new clause.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 29

BUSINESS EXPANSION (RELIEF FOR LOAN CAPITAL)

'Any reference to eligible shares for the purposes of Business Expansion Relief under Schedule 5 to the Finance Act 1983 shall include a reference to eligible Loan Capital which shall rank equally for income tax relief, subject to the qualifications that Business Expansion Scheme Loan Capital in a Company shall:

(a) not be repayable within five years;
(b) not carry any voting rights;
(c) not be entitled to interest in excess of base rates (as published quarterly by Her Majesty's Government);
(d) not participate in the profits other than by way of interest;
(e) not carry any preferential right of repayment in any circumstances other than in preference to equity share capital;
(f) not exceed the amount invested in Business Expansion Scheme equity shares; and
(g) specify the events that would enable the Loan Capital to be converted into equity and so carry voting rights.'.—[Mr. Richard Page.]

Brought up and read the First time.

Mr. Richard Page: I beg to move, That the clause be read a Second time.
I propose this measure with no hope or expectation that the new clause will be added to the Bill in 1985. I like to think that I can let it gently float upon the surface of the Treasury waters, so that the Treasury can consider the idea and possibly bring it forward in the Finance Bill 1986.
I am always reminded in matters such as this of one of the sayings of the late Lord Butler. When anyone saw him with a proposition, complaint or idea, he said, "How many are you?" I have been pleasantly heartened by the number of people who have expressed interest in and support for this idea.
One reason why this measure has been proposed is the relative failure of the loan guarantee scheme. I have been exceedingly disappointed at the calls placed upon the Government guarantee and at the high number of failures that have taken place.
We need to have a means of evaluating business propositions that do not require a high asset value. We should have a means of considering a business scheme and ascertaining whether it can be viable and stand on its own two feet without gearing it entirely to the assets that have been involved in the proposition. The work that has been done in the various local enterprise agencies within the Department of Trade and Industry in evaluating the business propositions put before them has shown how they can reduce new start-up failures to a rate between 1:8 and 1:12.
1.30 am
We must bear in mind the mentality of those who come forward to try to set up a business. They want to do it themselves, in effect. They want to become independent. They want to be their own boss. They turn to the business expansion scheme for start-up finance. We know that in Britain there is extreme difficulty in accumulating one's own finance. Perhaps the most finance that an individual can accumulate is through his own home, and there are some who would be reluctant to put that item or asset at risk. That is where the BES helps.
So much money is needed now to start up a business that the equity of the person who wants to do so is reduced sometimes to such an extent that he loses control and is not his own master. That means that he is back in the position from which he tried to escape. He wants to be his own master and does not want to be someone else's servant. That is why I have tabled the clause. By matching some form of loan to equity, with tax reliefs that give incentive to put money into the scheme and with the evaluation of the scheme that will take place, I hope that the clause will help many to start their own businesses.
I have introduced the clause because I have been approached by several people who have wanted to use the BES but have backed off it because they have been faced with the prospect of not having control of their company or that of not going ahead. As they want to be their own masters, they have withdrawn.
The conditions that are set out in the clause are infinitely flexible. I have set out principles but that is all. Whether any interest rates should be parallel with the base rates that are published quarterly by the Government is something that is open to debate. There are some who would say that the rate should be several points below the base rate. I have provided that the ratio of equity to loan should be 50–50 but others may consider that it should be a different proportion. I hope that my hon. Friend will give the principle due consideration over the next nine months or so before the next Finance Bill is introduced.

Dr. McDonald: I do not think that the clause would have the support of the Opposition. As Conservative


Members know, we have many doubts about the business expansion scheme and the way in which it operates without adding the proposed relief to them.
A person who subscribes for loan stock takes less of a risk than someone who subscribes for shares. If the company goes bust, for example, the loan stockholders are paid out first. It is only if there is anything left that the shareholders are paid out.
The BES started as the business start-up scheme might have had some merit when it was introduced. However, the way in which the scheme has been used has moved away from the original concept. Investors want to find an easy method of tax relief without taking any risk and that is why the Government have had to eliminate agricultural holdings, and subsequently property based investments, from the scheme. The Financial Secretary to the Treasury knows that we have doubts about some of the other companies which attract investment under the scheme. Tax relief was designed to compensate investors for taking risks in new industries that would have difficulty in attracting investment, so we cannot support this addition to the tax relief that is already available.

Mr. Graham Bright: I support the new clause which was moved by my hon. Friend the Member for Hertfordshire, South-West (Mr. Page). The business expansion scheme has been an unqualified success. In its first year it attracted about £100 million for equity in companies. It assisted about 500 companies, over half of which were very new or were just starting up in business. Their capital requirements were very modest. A third of them raised less than £50,000. The scheme meets a long standing need. As my hon. Friend said, the loan guarantee scheme, for which I campaigned, needs to be replaced by an alternative. It filled a gap, but unfortunately it was misused in many instances by the banks. Companies which did not meet their criteria were passed as a risk by the banks to the Government.
The purpose of the new clause is to extend the relief afforded to the business expansion scheme to loan capital. As both the Bolton and Wilson committees of inquiry found, many small companies are reluctant to lose control of their equity or to risk future loss of control, should they need additional capital. The loan guarantee scheme and the practices of the major banks do not necessarily meet the precise needs of these companies.
For this reason, the new clause provides that the provision of loan capital as well as equity capital should be eligible for income tax relief under the business expansion scheme. It envisages a loans commitment for a period of at least five years without any prospect of loss of control by the recipient company by the conversion of the loan capital into equity capital. Furthermore, an investor would not expect to receive extra payments of interest, as provided for in the loan guarantee scheme. In its new guise, the loan guarantee scheme is very much weaker than it was.
New clause 29 contains a scheme that is designed specifically to complement the provisions of the business expansion scheme and to extend them in a way that will be acceptable to new small companies. I recommend it to the House. There ought to be a rolling programme for small business initiatives. We need to introduce new ideas and improve what we already have. This would greatly help those small companies which hope one day to become large companies. At present, many of those who start or

own companies are reluctant to the point of not taking advantage of what is available to them in the market place because of fear of losing control of the company. The new clause would present an answer which would be acceptable to them, and I hope that the Financial Secretary will give the idea due consideration, if not tonight then at some time in the future.

Mr. Moore: If anything could endear me to the new clause, it was the charming way in which my hon. Friends the Members for Hertfordshire, South-West (Mr. Page) and for Luton, South (Mr. Bright) did not seem to have much anticipation of its being accepted. If anything also could commend me to support their attitude, it was the unstinting effort that they have made, along with other of my hon. Friends, in arguing for the cause of the small business and the extension of the business expansion scheme, which they see as a major help.
The business expansion scheme is designed to promote new and expanded activity in the small firms sector by mobilising a new source of equity investment in unquoted United Kingdom trading companies—equity investment by individuals who are not otherwise connected with the company. By contrast, this new clause seeks to extend the relief to investment in such companies by way of loan capital. We see real difficulties with this, given the underlying aims and objectives of the BES.
The fundamental purpose of the BES, like the start-up scheme before it, is and always has been specifically that of helping to meet a shortage of equity finance that is thought to face small companies. It always has been very difficult to pin down the precise nature and extent of any financing gap facing small companies, but for many years there has been — and I believe still is — widespread agreement that the main problem facing small start-up and newly expanding companies is one concerning equity rather than other kinds of longer-term finance.
To extend the relief to investment by way of loan capital would, therefore, defeat the fundamental purpose of the scheme. Indeed, one of the uses to which companies may put the proceeds from a BES issue is precisely that of repaying loan capital and other borrowing, other than from the BES investors themselves.
There is a second major difficulty with my hon. Friend's proposal. As I said in Committee, BES provides a uniquely generous level of relief. The object of, and justification for, this is that of providing a big enough incentive to encourage outside investors to undertake the kind of very high risk investment for which the scheme is intended—that is, a minority holding of new, full risk ordinary equity with no prior or preferential rights, with no guaranteed return, and, even assuming the business succeeds, with no certain or obvious exit route.
I appreciate that some of the qualifying conditions in my hon. Friend's proposal would be similar to those that apply at present in the case of BES equity investment. The fact remains, however, that under this proposal qualifying loan capital would not be at risk in the various senses I have described to the same extent as BES equity capital. For example, loan investors would have an immediate return by way of interest, whereas equity investors would not, and the loan investors would have priority over the equity investors as regards repayment of capital. In addition to my concern that this proposal would defeat the


fundamental purpose of BES. Therefore, I do not believe we could justify what is an extremely generous relief for this kind of investment.
We shall be reviewing the scheme later this year, once the results of the study are available. Clearly, it is too early to say what the outcome of this review will be, but I feel bound to say that, for the reasons I have explained, I see little prospect of our concluding that the scheme should be developed on the lines proposed by my hon. Friends.
While, therefore, I hear the words that they are uttering, I do not seek to give them too much encouragement, even at this late hour, and I hope that they will agree to withdraw the new clause.

Mr. Richard Page: I thank the Financial Secretary for the gentle way in which he led me down the path of rejection. I had hoped that as he had accepted an earlier clause, he would accept this one, but obviously his generosity lasts for only a short time and then he reverts to the normal Treasury line.
The House will appreciate that because of the lateness of the hour, I did not spend long expanding the thoughts on and principles behind the new clause. For anybody wishing to start a new business, a range of financial tools should be available, and the new clause would have provided an extra implement to help companies get started. I emphasise the need to have the equity and the loan in a set ratio so that the two go together and are linked, but designed to allow somebody starting a business to retain managerial control. I am conscious of the remarks of my hon. Friend. I know that in the past ideas have been summarily rejected and later surfaced suitably garnished and embellished with more expertise in draftsmanship than I am able to bring before the House. On that hope for the future in my breast, if nowhere else, I beg to ask leave to withdraw the motion.

Motion, and clause, by leave, withdrawn.

New Clause 31

ISSUE OF VALUE ADDED LOAN STOCK

`(1) The payments of interest by a company in respect of an issue of loan stock offered in accordance with the provisions of this section and the premiums paid on the redemption of that stock shall be deemed to be charges on the company which are allowable for the calculation of the corporation tax due to be paid by the company and shall not be taken to constitute a distribution as defined by section 233 of the Taxes Act 1970.
(2) For the purpose of this section "value added loan stock" means a loan stock with a stated repayment date in respect of which the amounts of the distributions to be paid from time to time shall be fixed at the time of issue in accordance with a published formula by reference to the amount of the value added by the company in the accounting reference period in respect of which each distribution is made, and the terms of the repayment shall be fixed in accordance with a published formula by reference to the amount of the value added by the company in the last five accounting reference periods before the repayment falls due.'.—[Sir B. Rhys Williams.]

Brought up, and read the First time.

Sir Brandon Rhys Williams: I beg to move, That the clause be read a second time.
I have been encouraged by the welcome I have had in past years for proposals of the same kind to believe that this proposal once again is worth a few minutes of the time of the House.
I have often sought to draw the attention of the House to the paradox in the capital market that, on the one hand, we have lenders not short of funds who complain that they cannot find suitable borrowers and, on the other, a large number of corporate borrowers who cannot get offers of finance on terms which they feel able to accept. So we have an unsatisfactory situation in regard to investment in the private sector; many companies have first-class schemes which are postponed from year to year because capital market conditions do not seem to the management to be quite right — so they postpone their project from one year to the next.
The reason is not that there is something wrong with the lenders or with the borrowers but that the structure of the capital market as it now exists in London is too limited. In particular, we tend to look at projects over much too short a term. Investors and borrowers cannot see far enough into the future as perhaps they were better able to do under the gold standard; so the returns on an investment have to be very quick if it is likely to find support. Big profits are needed in the early years. After that, what happens to the investment is a matter of relative indifference to both sides. That state of affairs does not show capitalism at its most fruitful. It ought to be a matter of serious concern to the Government to lengthen the time span of discretion in corporate finance.
Investment yielding a slow start in the early years, even with lively prospects in the long run, cannot get finance on terms which are acceptable to the parties. This is something that must be remedied and I think the remedy lies in minor reforms of the tax system, at any rate to a certain extent. I know it is dangerous to generalise, but perhaps it is worth the House considering the comparison between the present difficulties of raising finance for the Channel link, which is bound to be a success in the long run, but could well be a slow starter in terms of producing returns, and the Suez Canal, where Disraeli was able, I believe, to find money on 99-year terms with no difficulty when he went out to buy the shares.
Can we do something about this state of affairs? The risk of inflation makes fixed-interest borrowing very dear for companies in real terms in the early years. Convertible debentures do not solve any of the problems, although they have a certain use, no doubt. Deep discount, which the Government believe in and have made possible, is a gamble on inflation, with a winner or a loser according to whether the terms are right or wrong for the company which raises money in this way. That is not an attractive way of raising capital for very many solid and responsible managements and deep discount is not going to catch on in a big way. Equity issues put directors at risk because their profits may be diverted away from the remuneration of the investors, which they have offered in the original prospectus, by all sorts of forces over the passage of time. Current real rates of return are not high enough in many sound businesses for them to justify an issue of new equity stock, and so we drift on from year to year. Investors tend to buy existing assets rather than participate in new ventures, and that is an unhealthy and inflationary aspect of the capital market. We see it in the price of parades of shops and other properties, such as houses in Kensington, which constantly go up in price as funds look for places to rest.
Before I came to the Chamber, I turned up a copy of The Times for 1935, because I thought that it might be instructive to look at the page showing stock exchange


prices and the active dealings that took place in July of that year. I do not want to weary the House, but I can give some examples that leap to the eye. One of the sections that was quoted was the home railways section, which was divided into the ordinaries, the debentures, the guaranteed and the preference shares of the railway companies. That shows the range of opportunities available for corporate finance.
I looked up Imperial Chemical Industries, for which I had the pleasure to work for 14 years. It had ordinary shares in active issue being traded all the time, ordinary deferred issues and the 7 per cent. prefs, all of them active in the market. Harrods had an ordinary issue and 7·5 per cent. prefs. Imperial Tobacco had ordinaries, 5·5 per cent. prefs, 6 per cent. prefs and 10 per cent. prefs, no doubt issued at different times, but all of them actively traded in the market. GKN had ordinaries, 5 per cent. prefs, 5 per cent. second prefs and 4 per cent. debentures.
The structure of the stock exchange quotations for the standard, well-known British companies do not now have that range of different instruments by which the boards were able to raise finance in those days. In 1985, however, the Government do have this option, in that they can issue fixed-interest stock, which yields about 10·5 per cent., or indexed stock at 3·5 per cent.—about one third of the cost in terms of the initial real dividend for stocks of 20 years' duration. The cost over the life of the loan to the taxpayer in real terms may be the same, but the cost in the early years is much less, as only one third is going out in dividends for the same initial capital.
Private sector borrowers do not have this option. If they are going out to the market on fixed-interest terms, they have to pay something that goes beyond the fixed-interest terms offered by Government stock — that is to say, a very high real rate of interest in the early years, and then an unpredictable burden on the company as the years go by, because no one can see what inflation will do to the commitment to service a new debenture issue over a long span of time.
Private sector borrowers therefore believe that they cannot enjoy a similar option to the Government in issuing long-term indexed stocks such as would enable them to raise money at much lower cost in the early years. They may be misinformed. My hon. Friends have suggested that the changes in the tax system of companies in recent years has opened the way for such issues. People to whom I speak however, who are experts in that sector, do not believe that this is the case. If the market is unaware of the opportunities or doubts whether they exist, we are not likely to see companies making use of this facility.
If companies were able to issue indexed debentures in the same way as the Government, should they, prudently, use the RPI? I doubt whether it would be wise for companies to make the same commitment as the Government, and to bind themselves to meet changes in the RPI from year to year whatever they might be. If there are sudden changes in the RPI, there might also be sudden changes in the climate for business which would be adverse to the firm, and which would not necessarily leave it in a position to raise its dividend along with the RPI.
The RPI is something like goblin fruit: it looks very good, but in time it could poison one. It would be better for companies which want to enter the indexed market to devise a formula which would relate their dividends to the company's turnover, or to its value added, or to its annual achievement in one form or another, so that as the years went by, the commitment, which would be a prior charge,

would be within the capacity of the company to meet. The commitment would be ruled by the company's own performance and the investor in this type of stock would be participating in the performance of the company. It would be different from an equity, in that it would not be a discretionary dividend: it would be a genuine prior charge. The terms of the loan would be fixed from the start, and that would be made perfectly clear in the prospectus. It would be different from a debenture in that it would protect the investor from depreciation in the currency year byb year, because the calculation of the amount to be paid would be made in the currency of the year in which the profit and loss account was decided. It would be different from bank debt, because it would contain an element of participation in the firm's performance.
If it is true that the annual charge for service of an indexed loan would rank as a prior charge for corporation tax as my hon. Friends have been trying to explain to me—or if it did not greatly matter if it did or not, because of the reductions which have been made in the taxation of companies — we would still have the problem of the treatment of the eventual capital repayment. It would be unsatisfactory for the capital not to be indexed on the same or similar terms to the dividend. Obviously, it must be indexed in a way which does not introduce an element of discretion and I have tried in the new clause to suggest a way in which the discretionary element would be minimised. No doubt there are many other ways.
If the eventual capital repayment were twice or three times the numerical amount of the original loan, how do we treat that excess for tax purposes? I suggest that, up to the amount of the increase which corresponds to the increase in the RPI, the repayment should be free of tax. In so far as it exceeds or falls short of that, it should be taken into the tax liability of the recipient as a capital gain or loss. For the company, the repayment of the loan on the terms on which it was originally issued, must surely rank as a prior charge.
I realise that there are opportunities here for tax evasion, but my right hon. and hon. Friends are equal to overcoming that problem. I hold the belief that where there is a will there is a way. At the moment, this type of loan stock is not known at all, but if the tax position were clarified, it would gradually become an important element in corporate finance. Why not give it a chance? If companies do not want to use the facility, nothing will be lost, but if it is found to be a useful instrument for expansion, it must surely be worth making the effort to make the correct and necessary adjustments in our company taxation system.
The Government need not fear a loss of revenue, because a healthy private corporate sector must be good for the overall yield of tax. The Bank of England need not fear that private borrowers would crowd out the Government in the indexed market, because the supply of this type of stock would tend to create its own demand, as the market became used to its existence.
Existing equity holders would not suffer, because if a company's investment brought a good return, it would more than service the debt and provide an additional source of finance for increasing the equity dividend as well. We should not think only of the advantage to conventional corporate borrowers, but should look slightly wider to the facilities that the London capital market ought to be offering. This type of facility would open the way


to companies without equities. This is becoming an important element in the London capital market in the form of management buy-outs. It is a development which deserves the Government's fullest encouragement. Management buy-outs—or companies without equities—provide the Compromesso storico between capitalism and Marxism, where the profit belongs to the workers but there is a fair return to the investor too.
Investment under Islamic principles is also being sought for a large volume of funds. It would be a particular advantage if there were in London a range of stocks that were eligible to attract investment from owners of funds who have reservations about interest and want the yield from their investments to be characterised as a share in the profits rather than as a usurious exaction.
2 am
I also stress the advantage of the existence of a body of stock of the type that I have in mind to private pension funds. They want long-term inflation protection, are looking for some participation and are not attracted by the ups and downs in the casino of the stock exchange which has lately suffered such unpredictable changes and is geared to short-term considerations.
I hope that the idea behind my new clause will find support in the Government and that Ministers will continue to study my suggestions. I trust that they will see the value of widening the opportunities of obtaining corporate finance in London in this way, and will make the necessary changes in the impact of taxation.

Mr. Blair: The hon. Member for Kensington (Sir B. Rhys Williams) has correctly identified a problem, but I am not sure that I fully support his proposed solution.
The hon. Gentleman rightly said that there is a difficulty in borrowers getting finance at acceptable rates of interest and that the structure of the capital market is too limited and funds are provided for too short a term. Indeed, those are frequent complaints of the Opposition and they prompted many of the considerations that led my right hon. Friend the Member for Birmingham, Sparkbrook (Mr. Hattersley) to propose the establishment of a national investment bank.
I should like to make sure that I have understood the ingenious scheme proposed by the hon. Member for Kensington. It would allow companies to raise money by issuing loan stock, and the interest paid would not be treated as a dividend under section 233 of the 1970 Act, but would be allowable for the calculation of corporation tax and computed in accordance with a formula related to company performance.

Sir Brandon Rhys Williams: indicated assent.

Mr. Blair: I am pleased that I understand it. It is a peculiar type of stock, almost a hybrid. Interest payments are normlly treated as a straight deduction from profits, whereas the dividend would be subject to ACT. If a loan stock certificate for, say £1,000 were issued, interest would be payable, but it would be calculated on a basis that took into account the profits of the company within the five accounting periods laid down in the new clause.
I hope that the Economic Secretary will tell us whether that would give a favourable tax treatment for this type of share. It must surely have an impact on corporation tax

revenue. The hon. Member for Kensington has done us a service in raising the issue, but there may be better ways of dealing with the problem that he has identified.

Mr. Ian Stewart: I compliment my hon. Friend the Member for Kensington (Sir B. Rhys Williams) on raising this interesting subject. He has commented on the problems of matching borrowers and lenders, and suggests in his new clause an interesting and novel concept, which may assist companies with some problems in raising the type of money which they need and which investors will be happy to provide.
The new clause aims to ensure that interest paid on this special loan stock will be given a deduction in the same way as that paid on a bank loan, rather than treated as a distribution. I say that the clause "seeks" to ensure that payments will be treated in that way because in most circumstances that is already the case. Section 60 of the Finance Act 1982 provides that where in various circumstances interest paid is related to the company's performance and does not exceed a reasonable return, it will be treated as a deduction in the ordinary way. In the circumstances to which section 60 apply, the results which my hon. Friend seeks are already achieved.
If the principal of the loan were to be indexed to the retail price index — one of my hon. Friend's ideas — there would be a capital uplift on repayment, apart from on interest, which would be a capital item for both borrower and lender. In other words, the borrowing company could not obtain a deduction for the uplift, but the lender would be effectively exempt from tax because in most cases he would be covered by the indexation provisions. If the value added were in terms of the company's performance, an uplift would probably be treated as a distribution, subject to the provisions of section 60. In those circumstances although ACT may be payable, a deduction would be available against the company's ordinary corporation tax liability.
Since the indexation of CGT for assets without a one-year waiting period was introduced, if a company could get a tax allowance on the index uplift of borrowing, but was tax free on the disposal of an asset which had risen approximately in line with the RPI on the other side of the balance sheet, it would get double tax relief on the same increase in value. Therefore, I cannot give much encouragement that the Government will make the sort of tax regime for which my hon. Friend asks for index borrowing or other forms of borrowing where there would be a capital uplift which could be offset in part against a protected gain on the asset side of the balance sheet. I need to study the question more deeply, and to write to my hon. Friend on his technical points.
Taking into account our proposals on deep discount securities, we have ensured that companies will have considerable scope to draw on various borrowing instruments, including, with the CGT changes, index linked borrowing. I shall study the points raised by my hon. Friend, and thank him for having given us an opportunity to discuss these questions. I hope that in the light of those comments he will ask leave to withdraw the motion.

Sir Brandon Rhys Williams: I thank my hon. Friend for his helpful remarks. I recognise that the new clause, which is precisely the same as the one which I tabled three years ago and which also gave rise to a useful debate, is


defective and is not even a precise expression of what I now see as the desirable objective. I hope that on another occasion wee shall go further into the subject. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 34

RELIEF FOR DONATIONS TO ARTISTIC CHARITIES

'Donations to bodies whose principal field of activity is in the arts and which are registered charities shall be allowable as follows:

(a donations totalling 2–5 per cent. of gross personal income shall be allowable against income tax; and
(b) donations totalling 2–5 per cent. of pre-tax profits shall be allowable against corporation tax.'. — [Mr. Alan Howarth.]

Brought up, and read the First time.

Mr. Alan Howarth: I beg to move that the clause be read a Second time.
It is traditional that we debate clauses on the tax treatment of the arts at a late hour. That can, I hope, be taken as evidence of the seriousness of our concern about the subject. We are at least more fortunate than my hon. Friend the Member for Lewes (Mr. Rathbone) who was called at 7.50 am to speak on the equivalent occasion last year.
The new clause is intended to help the Government to strengthen their policy of plural funding for the arts. There are three main sources of public funding for the arts—grants from the Office of Arts and Libraries, administered at arm's length through the Arts Council, expenditure by local authorities, and tax concessions and incentives. The three should complement each other, but the balance is not right.
Funding by the OAL has increased by 11 per cent. in real terms since 1980–81. That is to the Government's credit, as is the fact that this year's increase approximately matches inflation. However, there is no further prospect of real increases in the OAL vote. My noble Friend said that central Government funding will remain broadly level in real terms.
That new situation gives rise to difficulties. Aspirations and costs continue to rise, but funding does not. For example, the Arts Council strategy, as set out in "The Glory of the Garden", has widespread acceptance in seeking to achieve a fair balance of support for the arts in the country as a whole. That strategy is likely to be frustrated, however, because there is is not enough money to provide new funding in the regions while preserving adequate funding in the metropolis and in the areas which up until now have received Arts Council funding.
All was relative sweetness and light among the recipients of Arts Council funding over a lengthy period when funds were growing. Now that funds are not growing there is ferocious competition and lobbying. In a fine flight of denunciatory frenzy Sir Peter Hall wrote earlier this year to the Sunday Times:
The Government is presiding over the dismantling of the British arts.
He then marshalled a chorus of 50 subsidised theatre directors and, as in the "Winters Tale",
there was casting up of eyes, holding up of hands
That is, perhaps, an understatement. The tighter the money becomes, the tougher and more political becomes the atmosphere.
Local authorities, the second main fount of state patronage, have their legitimate part to play, but too often their part is none too legitimate. Too many cases exist of funding masquerading as funding for the arts which goes to agitprop activities. The GLC's brinkmanship over rescuing the Cottesloe theatre is an example of the arts being abused as a political platform. Too much churning goes on in local government. Money is taken away in rates and comes back in smaller sums by way of grants.
Rightly, the Government's policy is not to relax their hard-won discipline over local government expenditure so we shall not have an increase of state support through that channel.
The only channel through which additional state support might be forthcoming is taxation policy. My new clause is a response to the Government's manifesto commitment to
examine ways of using the tax system to encourage further support for the arts and heritage.
The method of tax relief is an attractive approach in principle and has been supported by all parties, as evidenced in the Select Committee report produced in the last Parliament. To all of us in all parties who do not want the arts to be politicised, one of its great attractions is that it takes the vexed question of the totality of state support out of politics, because the amount made available to the arts in a particular year will depend upon the extent to which people avail themselves of the concessions and that cannot be known in advance. The larger the proportion of state support which is made in this way the more that will be so. I would not expect my right hon. and hon. Friends in the Treasury to be moved beyond a certain point, if at all, by this consideration, and yet the prospect of being freed from those perennial accusations of philistinism and meanness—totally without justification in their personal capacities—must hold some attraction to them.
It is unhealthy that Government subsidy provides more cash resources for the arts than private patronage. We cannot really want the arts to be a hybrid between a nationalised industry and an underfunded corner of the welfare state. The value of the existing range of fiscal concessions for the arts and heritage was estimated by The Economist last year at £15 million. The amount spent by the state is anywhere between £250 million and £500 million, depending on whether BBC expenditure is counted in. That is no sort of balance.
We must encourage private patrons. All great patronage has been private. The Tate gallery owes its existence to Sir Henry Tate, Lord Duveen and Sir Charles Clore. The National gallery was founded privately and three quarters of the pictures in it owe nothing to state patronage. It is about to enter a magnificent new phase thanks to the prodigious generosity of the Sainsbury family and Mr. J. Paul Getty junior.
2.15 am
It is profoundly encouraging that patrons are again coming forward on a significant scale. We must widen and consolidate the base of private artistic patronage. We need a better balance between public patronage, exercised by a handful of people of acknowledged judgment to whom we should be grateful, and the wishes of individual lovers of the arts. We also need a better balance between concern for the heritage, concern for the prestige items and the prestige institutions, and local manifestations of artistic life and enthusiasm which are the seedbed of new


generations of art. The best way for the state to help secure local cultural vitality is to give financial encouragement to individuals and firms through the tax system.
During my study of this subject, I have received letters from people working in the unsubsidised theatre. They are moving and persuasive and record a passionate relationship with theatregoers as opposed to local authority arts sub-committees. We could take an important step towards helping local theatres, museums, galleries and craft centres by giving fiscal support to their friends and patrons. Tax reliefs would result in more money becoming available to the arts overall. Whereas a grant is a single payment, a tax relief materialises only as other money is given.
More money is needed for the arts. Our museums, theatres and gallieries are chronically underfunded. As the Government frankly, but with an unnecessary air of gloomy finality, admitted in the Office of Arts and Libraries' reply to the Select Committee report:
it is unlikely that any Government will find itself able to provide the arts with the level of public funding which would enable all artists and arts organisations to fulfil all their hopes and ambitions.
Following the Priestley report and its acceptance, public support even for the Royal Opera House and the Royal Shakespeare company has begun to erode again. The cost of maintaining artistic establishments of the highest calibre by world standards, such as the Royal Opera House and the RSC, is determined in large measure by the purchasing power of the wealthiest countries. The cost to our great museums and galleries of maintaining and updating their collections can only rise as masterpieces become more scarce and as new sources of wealth enter the market.
Sponsorship has recently come to the rescue to a considerable extent encouraged with admirable vigour and enthusiasm by my noble Friend. The Government's will and capacity to stimulate sponsorship by matching grants will, however, reach its ceiling, perhaps before long, and businesses' will and capacity to sponsor will also reach saturation point. There are limits to how much can be achieved by treating the arts as an adjunct of public relations. Officials at the Inland Revenue are not alone in being sceptical about that. In the meantime, it is pleasant to think of those officials attending concerts and exhibitions to verify that business patronage is, in the formula,
wholly and exclusively for the purpose of trade",
but it is a fairly cumbrous way in which to proceed.
Other countries are increasingly allowing individuals and firms to offset some proportion of their pre-tax income against donations to the arts. In the United States the system has been established for as long as there has been income tax with the result that people and corporations give generously to the arts. It is an important and healthy fact that more than 80 per cent. of the support for the arts comes from private individuals who are encouraged to give through income tax concessions. It is well established in Germany that people can set off part of their tax liability by making donations to the arts. Similar arrangements have been established in Italy and France, and I have a leaflet from Australia which was published earlier this year, setting out with admirable clarity and succinctness the rules governing taxation incentives for the arts.
The arts in this country are admired by every other country and it is unimaginable that we should allow the arts to starve. The Government are not quite so severely economically minded in this or other areas as they make out. The Government have been praised for allocating a once-for-all sum of £3·5 million plus £4·1 million annually for the Priestley recommendations, £8 million for Calke abbey and £25 million for Kedleston hall, Weston park and Nostell priory. The Government must find the money. Sensible limits have to be set on the concessions allowed, taking account of the condition of the economy and the Exchequer, but our regular support for the arts must be improved. That improvement can only be provided on a significant scale by tax concessions. I suspect that that view is supported by the Arts Council.
In a thoughtful lecture on the political economy of the arts in March, Sir William Rees-Mogg said:
looking to the future, I am not sure that I would not prefer cutting out taxes on the arts to raising subsidy in real terms … I would prefer to reduce our clients' dependence on the Arts Council by cutting taxes on arts rather than by increasing subsidy—and I welcome tax cuts for the unsubsidised arts.
In the debate initiated by my hon. Friend the Member for Mid-Sussex on the Finance Bill last year, my right hon. and learned Friend the Chief Secretary said:
this Administration will always be astute to see that the tax system is sensitive to the preservation of this country's remarkable cultural heritage." — [Official Report. 11 July 1984; Vol. 63, c. 1261.]
That remark is justified by the Government's record. Relief from capital transfer tax has been introduced on gifts to charities and the minimum period for convenants has been reduced to four years. In this Finance Bill higher rate tax relief on covenants has been doubled and a valuable concession has been introduced for heritage land. The Government have enlarged the scope for private tax concessions on donations, but it would not be unrealistic to say that there is a palpable reluctance on the part of Treasury Ministers to embrace that policy.
In the debate last July my right hon. and learned Friend the Chief Secretary observed that the cost of the American system in tax forgone was about $9·6 billion per year. I suspect that he was making more of that than he should have done. In America, the share of total philanthropic giving attracting tax relief which goes to the arts and humanities is 6·3 per cent. according to the 1983 annual report of the American Association of Fund-Raising Counsel.
In the Office of Arts and Libraries' reply to the Select Committee the Government raised the further objection that to exempt companies and individuals from tax in respect of donations to the arts would be a concession which it would be difficult and inequitable to confine to the arts. That is not an impressive point. The arts are qualitatively distinct from other areas of our national life in which tax concessions also exist or are urged, having nothing in common with housing, pensions and so forth, and can be treated distinctly. The Government are in charge and are quite used to making administrative distinctions of that kind.
The Government need not fear some enormous, open-ended cost. The net outcome for the Exchequer would be at worst little loss and possibly even a gain. The performing arts and many other arts and heritage activities are relatively labour-intensive. The effect of the tax concessions would be to increase employment in that area so that the Government would save the cost of


unemployment benefit and would instead receive income tax and national insurance contributions as well as VAT and other revenue from the resulting higher level of activity.
It is a vulgar solecism and pardonable, if at all, only in a Finance Bill debate at an obscure hour of the morning, to justify support for the arts in terms of benefits to tourism. As we are talking in a financial context, however, it is perhaps fair to observe that tourism can be expected to be a significant source of earnings for this country and therefore of tax revenue. I know that my right hon. Friend the Minister of State values the arts for their own sake but I appeal to him in his ministerial capacity.
My right hon. Friend may also be worried in his ministerial capacity about some of the abuses of tax relief for the arts which have caused concern in the United States. He will, however, have noted that the thrust of the present United States Administration's approach is not to attack the principle of relief for the arts but to tackle the abuses. Overall, the American system has worked wonderfully well as a civilised and enriching influence for donors and the wider public alike, and it would be for us to develop a system suited to the specific circumstances of this country.
I recognise that a major departure of principle would be involved in acceding to my proposal and I do not ask my right hon. Friend to do so today. However, in a period in which the Government are giving fundamental consideration to the pattern of taxation in this country I urge them to give further constructive consideration to the question of tax relief for the arts with a view to including options for consideration in the Green Paper on personal taxation that my right hon. Friend the Chancellor has promised.

Mr. Terry Davis: I agree with the hon. Member for Stratford-on-Avon (Mr. Howarth) that it is a late hour to initiate a debate on financial arrangements for the arts. I also agree with him about the importance of the arts, but I cannot agree with the thrust of his argument about what he would describe as desirable financial arrangements for artistic activity in this country.
I do not believe that the hon. Gentleman made it clear in his speech that there are already some tax subsidies for the arts in the sense that tax relief can be given on covenants in favour of charities involved in artistic activities of the kind that he described.

Mr. Alan Howarth: I said that the value of existing tax concessions was about £15 million per year. That figure certainly includes relief on covenants.

Mr. Davis: The hon. Gentleman should not be so sensitive. I did not say that he did not mention it. I said that he did not make it clear. He did not put proper emphasis on the fact that there is already subsidy from taxation in the tax relief allowed on covenants. He now proposes that there be tax relief for one-off donations to artistic charities.
In his useful analysis of existing financial arrangements for the arts, the hon. Gentleman welcomed the increase in Arts Council grants. That, at least, is progress, as I believe that I recall him criticising the financial grant to the Arts Council in a previous debate on public expenditure and even calling for a reduction in public expenditure through the Arts Council.

Mr. Howarth: It is useful to clarify what happened in that debate. The hon. Gentleman will recall that the debate

was cut short by a timetable. I was developing the point that in my view there was merit in moving to a different balance between direct grant for the arts and state support for the arts by way of fiscal concessions of the kind for which I have argued today. I certainly did not suggest wholesale withdrawal of state support for the arts as the hon. Gentleman perhaps supposes.

Mr. Davis: The debate was not cut short by a timetable. I am prepared to accept that the hon. Gentleman may have felt that he was under some pressure from the Patronage Secretary and other close colleagues to cut short his remarks, but he cannot complain that he was cut short by the Opposition and there was certainly no timetable. Nevertheless, I am glad that the hon. Gentleman has had the opportunity to clarify his position, which I am sure will be of interest in his constituency of Stratford-on-Avon, which is so dependent on the Royal Shakespeare theatre as the basis for a great deal of its tourism.
The hon. Gentleman cannot deny that in a previous debate he criticised the amount of expenditure by the Arm Council, but today he has welcomed increased expenditure by the Arts Council. He may argue that on that earlier occasion he would have gone on to argue that the reduction in Arts Council expenditure that he sought should be compensated by private expenditure encouraged by tax concessions, but that does not justify his arguing on that occasion for a reduction in expenditure by the Arts Council and then welcoming an increase on this occasion. The hon. Gentleman is trying to have it both ways. He cannot have his cake and eat it as well.
2.30 am
It is also somewhat ironic that the hon. Gentleman should then touch on the second source of finance for the arts — local government. The amount of funds made available by local government for the arts is under serious threat as a result of the government's policies, which he supports. They are under threat from the abolition of the metropolitan county councils. I at least have received many representations from bodies interested in the arts in the west midlands, about their fears for the funding of arts there as a result of the abolition of the West Midlands county council. Others have received representations from other bodies that are concerned about the arts in other metropolitan counties. Rate capping and everything that goes with it is putting pressure on funding for the arts from the district councils.
The third source of funding for the arts that the hon. Gentleman mentioned is the one source that finds favour with him. He argues that state funding for the arts is a bad thing. He seems to think that private funding is a good thing because, if the funds come from private sources, the arts will not be "politicised". That is the word that he used.

Mr. Alan Howarth: rose—

Mr. Davis: I am happy to give way. The hon. Gentleman should make his position clear.

Mr. Howarth: I am immensely grateful to the hon. Gentleman. My argument was that state support for the arts should come from three sources — direct grants through the Arts Council, local authority expenditure and fiscal concessions. Those are three different varieties of positive state support for the arts.

Mr. Davis: The hon. Gentleman told us that the advantage of his third source was that the arts would not


be politicised, as happened with state support. Those are the words that he used, and we shall read them tomorrow in Hansard. He referred specifically to politicisation of the arts, as happens with state support. Now he is arguing that there should be three sources of state support.

Mr. Howarth: I am grateful to the hon. Gentleman for giving way. I am anxious not to be misrepresented. My observation was that when the state is trying to determine the total amount of money that should be available for the arts, it brings the arts into a political arena with the unfortunate consequences that I described. The attraction of having fiscal reliefs for the arts is that no one can know what the total will be, and therefore no one can complain that the Government have been too parsimonious, too mean, or have not given enough.

Mr. Davis: The hon. Gentleman can wriggle as much as he likes. He complained that state funding for the arts leads to politicisation. Via a long-drawn out route no doubt he will tell us, but that was the phrase that he used. He cannot get away from it. He had written it down carefully in the notes that he read, and we shall make sure equally carefully that it is written down in Hansard tomorrow.
As an expert opinion to support his point of view, the hon. Gentleman referred to an address given by Sir William Rees-Mogg. All parties in the Opposition do not regard Sir William Rees-Mogg as an independent political commentator on our scene. We do not take his views as in any sense independent. Certainly in the Labour party, and, I suspect in other parties in the Opposition, we would view with some apprehension the possibility of politicisation of the arts as a result of private sponsorship. I would not expect businesses in the City of London to provide funds for artistic endeavours that tended to criticise the establishment, particularly the economic system. To argue that state support leads to politicisation, but private funding encouraged by tax relief does not, is a serious mistake in a discussion of the arrangements for funding the arts.
I do not agree that all great patronage is private patronage. I hope that the hon. Gentleman will agree that I am quoting him correctly this time, because I wrote down those words as he said them, too. He referred to developments on the continent. My impression of what happens abroad is affected by my experience in the United States of America and the continent of Europe. I have a distinct impression that in other western European countries there is a great deal more state funding of the arts than in this country. Many European theatres, opera companies, museums and art galleries, which have given me great pleasure, are funded by state funds, either local or national. I should tell the hon. Gentleman that I have great respect for the National Theatre and the Royal Shakespeare Theatre. I do not yield to him in my respect for the latter, and I speak as someone who was brought up and lived for most of his life in the west midlands. The Royal Shakespeare Theatre depends upon a subsidy from the Government, through the Arts Council, and to argue that all great patronage is private patronage is certainly nonsense in Stratford-on-Avon, where I used to live.
On occasion, I have derived great pleasure from performances by visiting artistes from the Soviet Union. I have no great admiration for the system in the USSR, but I recognise that it has achieved high levels of performance

in artistic activity. One cannot argue that all great patronage is private patronage when one considers what has been achieved in the Soviet Union, much as I dislike its economic system and lack of civil liberties. I do not agree with the thrust of the hon. Gentleman's arguments.
The hon. Gentleman argued that, in some way, funds for the arts are different from funds for other activities. Again, I cannot agree with him. It is inconsistent to argue that there should be special arrangements for donations by businesses or individuals to the arts but that those arrangements should not apply to donations by those same businesses and individuals to sporting activities, or to charities engaged in looking after the welfare of the disabled, children or the elderly. Many hon. Members would argue that such tax relief should be given on donations to charities engaged in animal welfare and other activities which we favour. I do not understand why the hon. Gentleman singled out the arts from all the charities that we would wish to support.
The hon. Gentleman argued that expenditure on the arts is labour-intensive, and that tax relief on donations to the arts would reduce unemployment. Those are strange comments from an hon. Member who, earlier this evening, voted against a much smaller amount of money being used to provide tax relief for workplace nurseries.

Mr. Barney Hayhoe: My hon. Friend the Member for Stratford-on-Avon (Mr. Howarth) asked me at the end of a wide-ranging speech for an assurance that the Government would give further constructive consideration to these matters. I gladly give him that assurance.

Mr. Alan Howarth: I am grateful to my right hon. Friend. That being so, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 38

STAMP DUTY

'In subsection (5) of section 47 of the Finance Act 1973 for the words "stamp duty of £1" there shall be substituted the words "stamp duty of NIL".'.—[Mr. Neil Hamilton.]

Brought up, and read the First time.

Mr. Neil Hamilton: I beg to move, That the clause be read a Second time.
The new clause is in my name and in that of my hon. Friend the Member for Croydon, South (Sir W. Clark), who has sensibly departed. Its purpose is simple, and I promise to detain the House for no more than one minute. It eliminates capital duty, which is a form of stamp duty, now governed by European law. It is imposed on new share capital on the formation of a company or on later increases in its issued share capital.
United Kingdom business and its counterparts in Europe have been urging the abolition of that duty for some time, because it is an impediment to the growth of business. Although the Government support that aim, they argued that they were constrained by EC rules and were, therefore, unable to accede to requests to abolish the duty. However, on 10 June this year, at the Internal Market Council a directive was adopted allowing member states to fix the level of duty at between zero and 1 per cent. At present, in British law, it is a compulsory 1 per cent. Therefore, member states which wish to abolish the duty


completely are authorised to do so. I hope that my hon. Friend the Economic Secretary can confirm that the Government will now act to abolish the duty.

Mr. Ian Stewart: My hon. Friend the Member for Tatton (Mr. Hamilton) was right to draw attention to the position under the new directive on stamp duty, but I am sure that neither he nor any other hon. Member would expect me on the Government's behalf to accept on Report a new clause with a cost of £80 million or more—five or more times the cost of the stamp duty package that we debated earlier. Any decision on the future of the tax would only be taken in the context of budgetary considerations. The case for a reduction in or abolition of the rate of duty would have to be considered alongside any other tax reduction proposals as a matter of priority.
My hon. Friend has performed a useful service in drawing our attention to the fact that there is stamp duty on capital raising and that there are arguments for suggesting that it may be an impediment. No doubt, this is a matter of which we should take account at a suitable occasion in the future.

Mr. Terry Davis: The amount of stamp duty may be regarded as an "impediment" on raising money through the market, but it can be argued also that fees charged by accountants, lawyers, merchants and other who take part in a share issue—

Mr. Neil Hamilton: They provide a service.

Mr. Davis: Those charges can also be regarded as an impediment to raising money through the market. I do not expect the hon. Member for Tatton (Mr. Hamilton) to agree with me—he is in favour of those people; we are not.

Mr. Hamilton: By leave of the House, I do not propose to rise to the bait offered by the hon. Member for Birmingham, Hodge Hill (Mr. Davis). Having heard what my hon. Friend the Economic Secretary said, I hope that we shall return to this matter on another occasion. I therefore ask leave of the House to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 43

RELIEF FOR EXPENDITURE ON ELIGIBLE SECURITIES

'(1) This section has effect where an individual, who throughout a year of assessment is resident in the United Kingdom, incurs expenditure on acquiring eligible securities.

(2) For the purposes of this section eligible securities consist of:—

(a) shares or stock which at the time acquisition by an individual to whom the provisions of this section apply (or, if later, on 5th April 1986) form part of the ordinary share capital of a company resident in the United Kingdom and are quoted on a recognised stock exchange; and
(b) units in such authorised unit trusts as the Board may by regulation prescribe.

(3) An individual to whom the provisions of this section apply and who has, in any year of assessment, incurred expenditure on acquiring eligible securities may, by notice in writing given within six months after that year, make a claim for relief from income tax on an amount of his income equal to so much of such expenditure as does not exceed £500.

(4) The Treasury may by order made by statutory instrument increase the amount of £500 in subsection (3) of this section to such amount as shall be specified in that order.

(5) The following provisions shall have effect as respects relief under this section—


(a) the amount of any expenditure in respect of which a claim for relief might otherwise be made under this section as regards any year of assessment shall be reduced by the aggregate amount of the proceeds of any disposals of eligible securities made during that year by the individual concerned;
(b) in the event that an individual to whom relief has been given under this section as regards any year of assessment disposes of eligible securities in any subsequent year of assessment (being a year of assessment ending on or before 5th April 1986) and does not in such subsequent year of assessment incur expenditure on acquiring eligible securities in an amount equal to or exceeding the proceeds of all such disposals, then he shall forfeit so much of such relief as is equal to the amount by which such expenditure falls short of such proceeds, or, if there is no expenditure so much of such relief as is equal to such proceeds;
(c) a claim for relief may require it to be given only by reference to the income of the individual without extending to the income of his spouse;
(d) subject to paragraph (c) above, relief shall be given by treating the expenditure as reducing first the earned income of the individual, then his other income, then the earned income of his spouse and then his spouse's other income;
(e) the relief shall be given in priority to relief under section 168 of the Taxes Act or section 30 of the Finance Act 1978.

(6) Where the Board is of opinion that any acquisition or disposal of eligible securities which is material for any of the purposes of this section is not at arms' length and accordingly directs that this subsection shall apply, then for the purposes of this section there shall be substituted—

(a) in the case of an acquisition of eligible securities, for the expenditure on such acquisition; or
(b) in the case of a disposal of eligible securities, for the proceeds of such disposal; the market value of such securities at the time of such acquisition or disposal.'.—[Mr. Kirkwood.]

Brought up, and read the First time.

Mr. Archy Kirkwood: I beg to move, That the clause be read a Second time.
The provenance of the new clause was provided by the speech made by the Chancellor on 11 June 1985 at the Maurice Macmillan memorial lecture, which he delivered to the Wider Share Ownership Council in the Grand Committee Room. The terms of the new clause are neither original nor entirely new to the House. In 1981 my hon. Friend the Member for Colne Valley (Mr. Wainwright) introduced a similar measure. The idea behind the new clause was pioneered in France, where the scheme has been in operation for some years. The scheme has been extended to Belgium, Sweden and Norway. It has found great favour abroad and has produced economic and financial benefits in other European countries. I suggest that it has friends not only abroad but in the House, including Conservative Members.
The scheme involves giving tax relief on acquiring securities in certain circumstances. The details of the maximum limit to the amount of relief in the period of the tenure and the other terms of the scheme would all be open to negotiation and discussion. The key feature is that the money that would be granted relief would be wholly additonal investment. Life assurance and pension funds have tax advantages — why not equity acquisition as well? Tax neutrality is a worthwhile goal at which to aim, but in today's fiscal conditions why not have an element of equity purchase too?
The main purpose of the relief is to arrest and reverse the tide of investment in corporate form, in contradistinction to the sad decline in the personal sector of investment. Under the heading "Wider Share Ownership" the Chancellor said:
In the 1950s, for example, private investors accounted for two-thirds of all transactions on the Stock Exchange. The proportion is now probably below a quarter. And until very recently the decline was accelerating. The proportion of UK shares owned directly by individuals fell from 37 per cent. in 1975 to 28 per cent. by the end of 1981.
The opportunity is there for the Government to do a great deal more to encourage the private sector to return to the stock market. I accept that they have done something by reducing stamp duty and that a certain amount has been done under the employee share ownership scheme, but a scheme of the sort that is proposed in the new clause would produce a great increase in turnover in the stock market and would lead to a strong market performance in future. I urge the Government strongly to consider the scheme.

Mr. Wrigglesworth: As my hon. Friend the Member for Roxburgh and Berwickshire (Mr. Kirkwood) has said, the new clause is an attempt to implement in the United Kingdom a scheme to encourage share ownership purchase similar to that pioneered in France by Rene Monory in 1978. The French scheme was subsequently amended by Mr. Mitterrand's Minister, Mr. Delors. As my hon. Friend said, such schemes have been introduced with considerable success in other European countries such as Belgium, Sweden and Norway. A similar scheme is proposed in the Netherlands.
The Government might claim that their privatisation programme will lead to much wider share ownership, but that is questionable. The extensive programme of asset sales — it is estimated to average about £2·5 billion annually for the next three years — will not necessarily build a large base of private shareholders. By comparison with the United States or Japan, the British record of individual shareholding is poor. Less than 4 per cent. of individuals in Britain hold shares compared with almost 20 per cent. in the United States and almost 17 per cent. in Japan. Even the 8 per cent. of the adult population to which share ownership in Britain rose as a consequence of the BT flotation has fallen to 7 per cent. as a result of subsequent share disposals.
The unprecedented campaign and the incentives to attract small investors may again be emulated by the sale of British Gas but it will be hard to sustain in future issues. The evidence of British Aerospace is not encouraging. Of the 44,000 who held up to 99 shares each on that sale immediately after flotation, only 3,279 remained a year later. That was a staggering reduction. Of the 80,000 who held between 100 and 500 shares, only 13,000 remain. The total number of shareholders fell in a year from 157,829 to a mere 27,175. It will not be until the end of the voucher incentives for the larger shareholders in BT — those who hold 3,000 shares or more — that a full picture of the concentration of share ownership in BT will become possible.
It is clear that the take-up of employee share options in the privatised companies has been extremely limited. A parliamentary answer on 9 January gave the proportion of shares held initially by employees. It was 3·6 per cent. in

British Aerospace, 1·4 per cent. in Cable and Wireless, 3·7 per cent. in Amersham International, only 0·1 per cent. in Britoil, 4·3 per cent. in Associated British Ports, 0·03 per cent. in Enterprise Oil, 1·3 per cent. in Jaguar and 1·9 per cent. in BT. These are minute percentages of the employees.
Even though the privatisation programme has not yet resulted in wider share ownership and employee share ownership on the scale that was claimed for it, it has undoubtedly kindled interest in the concept of share ownership among many who would not previously have contemplated it, and that is to be welcomed. The number of employee share ownership schemes approved by the Inland Revenue since the fiscal incentives were promoted in the Finance Act 1978 has grown impressively from 33 in 1979–80 to about 433 now. There are nearly 800 if employee share ownership schemes are included. It shows a substantial growth on the basis of the scheme introduced in 1978 that bears some resemblance to this new clause.
Even if these schemes can be viewed as a form of deferred profit sharing, like other forms of wider share ownership they are transforming the character of the market economy and conferring the benefits of capital ownership upon a wider number of people than entrepreneurs and those who are fortunate enough to have a substantial accumulation of capital. The time is opportune to provide incentives through the tax system to give a new impetus to these developments and to stimulate the rapid growth of an industrial third force, the co-operative sector, and radical innovations such as employee buy outs to revive companies which have failed through incompetent management rather than through adverse market conditions.
The new clause would build on the modest take-up of the 1978 profit-sharing scheme which, although it started well, still covers fewer than 2 per cent. of employees. It provides the framework for stimulating these developments as well as boosting the equity base of companies and stimulating savings. It would help us to move away from the inbuilt discrimination in the taxation system which channels 70 per cent. of our savings into safe institutional investment in building societies, insurance companies and pension funds, compared with only 50 per cent. in the United States.
The variants on the Loi Monory scheme and the Delors scheme which have been introduced in Europe have helped to promote an inflow of cash which, according to the Investors Chronicle, has been an important factor in limiting the extent of market setbacks and contributing to a further substantial rise in prices. The introduction of schemes such as that contained in new clause 43 has taken place in combination with the creation of equity funds, which in Sweden showed a phenomenal growth from £13 million in 1979 to £165 million in 1983 and made a significant contribution to the buoyancy of the Swedish stock market.
The potential for employee shareholding schemes is at present strictly limited by the requirements of the institutions' protection committees: that not more than 5 per cent. of a company's pre-tax profits can be used in any one year and not more than 1 per cent. of issued share capital can be subscribed in any one year. For a large British company with a turnover of £1 billion, a capitalisation of £200 million and profits of £50 million this would mean that no more than £2·5 million of equity could be purchased annually. It would take 20 years to


build up an employee's stake of as much as 20 per cent. This is a most regrettable state of affairs. By accepting the amendment the Government should take this opportunity to review the obstacles that stand in the way of wider share ownership. We hope that the Financial Secretary will respond to that opportunity.

Dr. McDonald: I listened carefully to the speech of the hon. Member for Stockton, South (Mr. Wrigglesworth). He referred to employee share ownership schemes and to the promotion of co-operative share ownership. The Opposition might view the new clause with more favour if that was the purpose of the new clause, but it does not limit tax relief for employees or co-operative share ownership. Tax relief is to be made available to individuals and the maximum relief to be made available will be £500. However laudable its aim might be, the new clause provides yet more relief to those who already have. Even though the maximum amount of money that can be invested in shares in any one year is limited to £500, this comparatively small amount is beyond the means of many people. This would not be our first choice when considering how tax relief should be distributed.
Secondly, the richer the investor and the higher his rate of tax the more this relief is worth. Neither the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood), who moved the new clause, nor his hon. Friend the Member for Stockton, South gave an estimate of its cost. I hope that the Economic Secretary will refer to it so that we may have some idea of the size of the give away that the new clause envisages.

Mr. Ian Stewart: I compliment the hon. Member for Roxburgh and Berwickshire (Mr. Kirkwood) on his patience in batting last in the order but on having nevertheless instituted an interesting debate at this hour on the proposals in the new clause, and his hon. Friend the Member for Stockton, South (Mr. Wrigglesworth), who spoke of the wider share ownership aspects.
I have considerable sympathy in principle with proposals which promote wider share ownership by individuals and which encourage investment in British industry. The record of the Government on wider share ownership is good. But with regard to investment in United Kingdom industry, we have felt it more appropriate to target relief for new investment where it is most needed—for example, through the business expansion scheme.
The hon. Member for Stockton, South referred in particular to the example of the Loi Monory, but the situation in France is, and has been, different from that in our stock market. One of the objectives of the French scheme was indeed wider share ownership, but they also wanted to strengthen their stock market and improve the capital base for French companies, which was much less developed than that in the city. They wanted to reduce the

gearing of companies and provide funds for additional investment. It is not on all fours with the position in the United Kingdom.
The other French objectives, other than wider share ownership, are less relevant for us because of our larger stock market. They also have a different tax system in France and it is not possible, therefore, to make a direct comparison with that country, nor with the other countries mentioned in the Investors Chronicle article. Some of the growth in the stock markets of those countries has been due, in any event, to the increase in foreign investment.
The first questions to ask about the new clause are, as the hon. Member for Thurrock (Dr. McDonald) said, the cost and whether such a provision would represent a sensible use of those resources. We calculate that for every 1 million cases, the tax relief would cost about £150 million. It is not possible to predict in advance how many people would take advantage of such a scheme, but I have given the round figure of about £150 million.
The trouble is that such investment would not be wholly additional. The expectation is that, at least in the first year, and probably in other early years, much of the cost would derive from switching by people who already have share ownership. It would be bed and breakfast; they would sell and re-purchase or sell one and buy another. It would be difficult to isolate individual purchasers in that way.

Mr. Gerald Bermingham: Does the hon. Gentleman agree that, as a result of the Budget, bed and breakfast has become legal again?

Mr. Stewart: Bed and break fast has never been illegal. It has sometimes been easier and sometimes less easy to do. It seems to be an ordinary stock exchange operation. I am not suggesting that we should provide an opportunity for it, with heavy cost to the taxpayer, which would not bring substantial funds into the market for the reasons that I have given.
It was pointed out that similar new clauses were debated four or five years ago. I am afraid that hon. Members will have recognised that the arguments that I am adducing are similar to those which may have been used on those occasions. I have sympathy with the objectives of the new clause, though I do not believe that this would be the way to achieve them, and the considerations that were put forward four of five years ago still apply. For those reasons, I cannot commend the new clause to the House.

Mr. Kirkwood: I refute everything that the Minister said about the application of the Loi Monory, but perhaps we should go there and investigate the position. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Further consideration adjourned. — [Mr. Archie Hamilton.]

Bill (not amended in the Committee, and as amended in the Standing Committee), to be further considered this day.

Orders of the Day — Isles of Scilly

Motion made, and Question proposed, That this House do now adjourn—[Mr. Archie Hamilton.]

3 am

Mr. David Harris: Even at 3 o'clock in the morning I warmly welcome the opportunity of raising the problems facing one of the most beautiful parts of the country, the Isles of Scilly. In doing so, I thank my hon. Friend the Minister for agreeing to reply to this debate, because it has had a change of title. My original intention had been to raise the problem of electricity charges on the Isles of Scilly, but because of a pending court case it was thought that this might be sub judice. With the Minister's agreement I have now brought forward the debate on the general problems of the Isles of Scilly.
Those problems are deep-seated and long-standing. To many holidaymakers enjoying themselves in the Isles of Scilly these islands must seem like paradise, but they are a paradise with real problems. I hope to touch on some of those problems straight away, but before doing so perhaps I could call in aid no less a person than HRH Prince Charles the Duke of Cornwall, who last year wrote a foreword to a very comprehensive study carried out by Graham Moss Associates into the economy and the development of those isles. In his foreword Prince Charles pointed out that the islands have a unique environment which is enjoyed by many thousands of people each year. He went on to say:
However, in recent years, economic pressures have become more intense and the Islands' economy has become more fragile.
These islands, five of which are inhabited with a population of just under 2,000, are some 30 miles west of Land's End and they rejoice, perhaps quite rightly to an extent, in the title "the fortunate islands". But, as I have said, there are real and long-standing problems. The cost of living on the islands is appreciably higher than on the mainland in many regards. It was calculated last year, in the Graham Moss report to which I have referred, that probably the cost of living on Scilly is 10 per cent. to 35 per cent. Higher than on the mainland. Even if one excludes housing costs, which are exceptionally high, the cost of living is probably 8 per cent. to 12 per cent. higher than on the mainland. This extra cost springs in part from the difficulties of transportation. Practically everything consumed on the island has to be brought, normally on the ferry, from Penzance, some 40 miles away, or by helicopter; and there is now a Skyvan service to the islands.
Similarly, all the produce grown, the flowers and the early potatoes, has to be transported to the mainland. The difficulties are compounded if one happens to live on one of the four off-islands, because normally there is that extra leg of a journey from the main island, St. Mary's, to the off islands. It is not a question only of freight. It is also a question of passengers. This is a considerable burden on holiday trade because fares are a very big component of any holiday on the Isles of Scilly and also for islanders themselves when they go to the mainland.
Perhaps I should point out that the Government's recent changes in student travel grant arrangements particularly hit the islanders and, whereas a £100 grant might be quite reasonable for somebody living on the mainland fairly near

to his university, for someone who has to travel from the Isles of Scilly that initial leg of the journey before he gets to the mainland is very expensive.
I must not stray too deeply into the vexed question of electricity. However, the islanders have had a 14 per cent. increase in electricity charges this year, whereas the other consumers of the South-West electricity board, on the mainland, have had an increase of under 7 per cent. The charges for electricity on the islands are 37 per cent. higher than on the mainland.
Housing is another very big item of expenditure, and it is difficult to build houses on the islands. The sites and the water and other services are not available, and any properties that become vacant are immediately snapped up for holiday homes or, in some cases, for people coming from the mainland to live. We all know that a distinguished former Member and former Prime Minister lives for part of his time on the island, and is welcome there. He has on many occasions spoken up for the islanders.
Water is a big problem on the island, as is refuse disposal, which has been a major headache over several years. The difficulties continually impinge on the two main industries that sustain the economy of Scilly — tourism and horticulture. I would hate to give the impression that all is gloom. When some two years ago I had the honour to become the Member for St. Ives—my constituency includes these islands — I was worried about their economy. There has been a general upturn in the tourist trade. This year, as well, growers have done reasonably well with their daffodils and potatoes. The islands have considerable strengths. They have a versitile and talented population. I am always struck by the amount of talent — particularly among the young people who have come back to Scilly after a spell on the mainland — by their enterprise, and the way in which they are tackling the problems of the economy.
The Island Council has recently been restructured and an environmental trust has been set up, partly due to Prince Charles's interest in the matter, and there is the project for the extension of electricity to the off-islands, which is being carried out now. That is perhaps one of the biggest developments in the history of Scilly. It has given some uplift to the morale of the islanders.
However, the problems have been there for many years. It would be wrong to say that everything is all right with Scilly, and we need do nothing more. That is rather the traditional approach of successive Governments. They have rather waited for a crisis to hit the islands—be it replacement of the Scillonian, the ferry that linked the mainland to the islands or, quite recently, the threat of the possible closure, for financial reasons, of the islands' airport.
When these crises have arisen, the Government have normally responded, although they may have taken some time to do it. The time has come to try to get away from this rather piecemeal approach to dealing with these deep-seated problems.
What really rankles among my constituents on the islands is the difference between the policy that is handed out to them and that for their counterparts in the Scottish islands. For example, the ferry services to the Scottish islands are heavily subsidised from Government funds.
On electricity charges, the Scottish islanders are in the happy position of paying the same tariff as the consumers on the mainland. Here is the big difference between the


treatment given to the Scottish islanders and the treatment which the islanders of Scilly receive. That is grossly unfair to the islanders I represent. I have just been refreshing my memory by looking back through Hansard while we were discussing this year's Finance Bill. In the 1953 Finance Bill the Conservative Government in which Mr. Rab Butler was Chancellor decided that in future income tax should be paid by the islanders. They had escaped it up to that point. The islanders were subsequently made to pay excise licence duty and road fund licence duty.
In recent years the Government have argued that the islanders must be treated in the same way as everyone else in the United Kingdom. My complaint is that in the matters of transport and electricity they are not being treated in exactly the same way as the rest of us who live in the United Kingdom. That is unfair and I hope the Government will direct their attention to those problems.
I can understand the reluctance of the Government to give operating subsidies, be they for a ferry service or for electricity. At the moment there is a subsidy towards electricity, although it is paid for by consumers in the area of the south western electricity board on the mainland. I can understand the Government's reluctance to go down the path of operating subsidies, but if they are not going to go down that path, then they should give some other compensating payments to the islanders. To a certain extent they do, and I have no doubt that my hon. Friend the Minister will say something about rate support grant. I would be the first to acknowledge that the islanders have been treated quite well in that respect. But there is a case for doing more.
One imaginative idea which has been put forward is that the islands should be made a duty-free zone. That would certainly help the tourist trade, but there are other ways of helping the islands. For example, the very energetic branch of the National Farmers' Union on the island put forward and pressed for a long time a shopping list of measures which would give the island's growers some real benefit from their recently won status as a less favoured area under European Community policies. I hope the Agriculture Ministers will look at that in detail.
A programme has been drawn up with the European Community in connection with capital and other development projects using largely European funds. The trouble here is that the Government have shown a marked reluctance—I must say this—to provide their share of the finance needed to carry out integrated development operations. I hope that the Government will have a serious look at this matter because from my past experience as a Euro MP for Cornwall and Plymouth, when I was deeply involved in this matter in the early stages, I know that the Commission is eager to do something along those lines for the islands.
Some years ago, I arranged to take the director for regional policy from the Commission in Brussels to the islands. He saw the problems for himself, and the Commission is very receptive to the idea of a development programme for the islands for which the Commission of the European Community would probably provide over 50 per cent. of the necessary finance.
A considerable amount of work needs to be done, particularly on water supplies and the quays for the off-islands to allow inter-island launches to get to the off-islands much more easily than at present. A range of imaginative proposals were included in the report to which I referred earlier.
My plea is that the Government should take a hard look at Scilly and not wait for the next crisis, which could come any day. We must try to get the economy of the islands on a much sounder basis. Prince Charles said in the foreward that I mentioned earlier that he hoped that it would be possible for the islands to move towards a more secure and prosperous future. That is certainly my wish.

The Parliamentary Under-Secretary of State for the Environment (Mr. Neil Macfarlane): I endorse the final comments of my hon. Friend the Member for St. Ives (Mr. Harris). I am sure that we both share those aspirations.
I am grateful to my hon. Friend for bringing these issues to the attention of the House. It is easy to forget—or for many to realise — the many problems faced by the inhabitants of our offshore islands; everyday matters which, on the mainland, we take for granted, such as easy transport links, electricity and other services. We would all do well to reflect that the Scilly Isles are rather further from the coast of England than the continent of Europe. My hon. Friend ably represents these distant parts of his constituency. His constituents will be grateful to him for raising these issues and they are doubly fortunate to have as their Member a man who knows his way round the corridors of Strasbourg and Luxembourg and knows how to harness the needs of his constituents to possible funding from Europe.
My ministerial colleagues at the Department have very much valued the contact that they have had both with my hon. Friend and with the officers of the Council for the Isles of Scilly. My noble Friend Lord Skelmersdale had a most informative and enjoyable visit to the Isles last year and experienced both their problems and their generous hospitality at first hand. I know that he would want me to record that he found his visit stimulating and rewarding; it gave him a clearer insight into the serious difficulties that remote island communities have to face. That was of great help to all of us in the Department.
I do not wish to dwell solely on the islands' problems. They have an outstanding reputation as a paradise for tourists. Distinguished royal visitors, former Prime Ministers and Cabinet Ministers have found them a haven from the pressures of the mainland. The islands are also a source of high quality horticulture.
As regards tourism, I was delighted to read the article in the April edition of "In Britain" which, in narrative form, sets out some of the islands' many virtues. On horticulture, the House needs no lessons in geography to recognise the Isles as a source of early spring flowers, and it is no surprise that the word "Scilly" is derived from another word meaning sunny.
I shall not deal tonight with some of the points raised by my hon. Friend, but I will give him a fulsome reply in due course.
The Government have been impressed by the comprehensiveness of the final report on the integrated operations study of the Isles of Scilly commissioned by its council.
European Commission regional policy aims to
promote the convergence of national economies and a more balanced distribution of economic activities within Community territory".
The integrated development operation approach is an attempt to further this co-ordination. The concept is based


on the assumption that in some areas it may be possible to increase the impact of expenditure by further co-ordination of Community aid and domestic expenditure.
Throughout the preparation of the study, I was pleased to note the good working relationship between the parties involved and I am sure that that was a decisive factor in ensuring the successful completion of their work.
We are well aware of the economic problems of the islands, and the report clearly outlines a varied list of schemes aimed at improving the wellbeing of the islands, for both the residents and the many visitors attracted by their outstanding natural beauty. I note that the consultants have not only identified schemes for implementation over the next 10 to 15 years, but have given them priority ratings. That is a sensible step towards the sound future planning of the islands' economy, and is in line with the Commission's philosophy of how integrated operations studies should operate.
The European Commission and the Government have, however, made it clear that integrated operations should not be seen as a means of obtaining additional funds, whether European or domestic. The Isles of Scilly representatives have always been advised that the concept was intended to help improve the co-ordination of existing financial mechanisms for promoting development — a point which is now well reflected in the European regional development fund regulation, which came into being on 1 January 1985.
At present there is no Community machinery for considering as a totality applications which are currently handled by separate Directorates General in Brussels under different timetables.
Until the Commission has further clarified its position on the designation of "integrated operation areas", the Government will continue to submit eligible schemes from the islands at the highest rates available under the existing fund structures. To that end, my Department's officials have recently submitted a number of top priority schemes for ERDF grant aid at the highest grant rate of 55 per cent. My Department's officials will do all that they can to ensure that the Commission reaches a positive decision on those schemes. I fully accept that my hon. Friend wants a constructive policy, which is not wholly reactive, but steady, consistent and forward looking.
My hon. Friend expressed great concern about what he feels to be the injustice that the Isles of Scilly must suffer compared with the Scottish islands regarding transport services to the mainland. He has argued ably that if the transport services to Scotland can be subsidised, why should not those to the Isles of Scilly, which are of a comparable nature and equally remote. I must admit that I could, on the face of it, feel some sympathy for that view, but the case is not as straightforward as it seems. The longstanding subsidies for shipping given by my right hon. Friend the Secretary of State for Scotland are made under Scottish legislation, and new legislation would be required to do that in England.
Government policy generally is to oppose subsidies for shipping. But above that, the ferry service to the Isles of Scilly appear to operate profitably, and the Government would find it difficult to justify subsidising an apparently profitable commercial company. We had gone about as far as we could when, a few years ago, we gave them a returnable grant for a new ship which was of real

assistance, and should not be overlooked. In addition, the Isles of Scilly Steamship Company has been exploring ways of making its service more economical and reliable.
Similarly, we could not directly subsidise the air services. There are a number of them, although the backbone is the helicopter link provided by British Airways. But there are other, again apparently profitable, commercial services. The Government have, however, given the isles substantial indirect help over the past three years in the form of grants to make good deficits incurred in running St. Mary's airport, which the council took over in 1982. In total, nearly £190,000 has been provided or approved, which has enabled the council to consolidate its position so that it now expects the airport accounts to show a surplus. I am sure that my hon. Friend will share my view that that is a most welcome development.
My hon. Friend also raised the question of the disparity between the isles' and mainland electricity charges. I cannot comment on that as the matter is before the courts and is, therefore, sub judice. However, I should like to point out on a related matter that mains cabling is now being installed to the islands of Bryher, St. Agnes, St. Martin's and Tresco, for which I know the islanders have pressed long and hard. That will bring real benefits to the communities. There may be some grant aid available from the council to help householders bring electricity installations up to the standard required for mains supply where such installations do not already meet it.
The Government are providing substantial assistance towards the cabling to the off-islands, with a contribution from the Countryside Commission of £132,000. The Duchy of Cornwall has also agreed in principle to a contribution of £100,000.
An application for ERDF grant aid has also been made, and was submitted to the European Commission in June this year. A grant rate of 55 per cent. is being sought. The application was prepared following discussion with my Department and South-West electricity board officials. SWEB officials visited Brussels to seek the European Commission's support for both the concept of the scheme and the option chosen. That involved a certain amount of more expensive undergrounding because of the need to preserve the island's environment. The Commission is expected to announce its decision in the autumn.
My hon. Friend raised the question of students' travel costs and the position of the few students from the Isles of Scilly who are attending distant institutions. I appreciate the point, but I understand from my colleagues in the Department of Education and Science that a number of institutions in particular areas elsewhere have also made similar representations.
The Government made it clear from the start that any policy which would achieve a worthwhile degree of administrative simplification, as well as ending the open-ended commitment to public expenditure which the present arrangements entail, would necessarily involve an element of rough justice.
Students from the Isles of Scilly will be at some disadvantage, particularly if they choose to study at institutions at the opposite end of the country. Any student who chooses to study at an institution remote from his home will need to give careful attention to the resources available. Any help for particular groups of students could only be provided at the expense of others and we do not


believe this to be justified. It would also reintroduce complications into the system which would effectively defeat our primary objective of simplification.
For all of those reasons, the Government would be reluctant to contemplate any immediate change in the present system. But, as my hon. Friend the Parliamentary Under-Secretary of State for Education and Science said in the House last October, if, once the new system has had a chance to settle, we are presented with compelling evidence that some students are facing hardship and if a means is available to overcome any problems in an administratively efficient way. I can assure the House that we shall look at them again. This is the only way to proceed.
My hon. Friend has raised the question of local authority expenditure and the rate support grant. He said that they had not done badly this year. The Isles of Scilly's target for 1985–86 of £1·3 million, is an increase of nearly 3 per cent. on the 1984–85 budget, and an increase of 2·5 per cent. on last year's target.
The council's grant-related expenditure this year at about £1·4 million is up 11 per cent. on last year's figure.

This large increase is due to a recalculation of the Isles of Scilly special costs component, to include for the first time expenditure on transport. That will be welcomed. I know that the council has requested that sewerage and sewage disposal should be included in the special costs component, but the Government believe that the component overall adequately reflects the additional costs faced by the Isles council attributable to the Isles' remoteness. My hon. Friend will be glad to note that we have, however, agreed to reconsider the matter at a later date.
I hope that I have dealt with all the points. I am confident that everything can be studied closely by officials and Ministers. We have the interests of the islanders at heart. I am sure that my hon. Friend will be patient while I look into the other matters which he raised this evening.

Question put and agreed to.

Adjourned accordingly at twenty-seven minutes past Three o'clock am.